Price-Gouging?

The Department of Energy has a Web site (http://gaswatch.energy.gov/)
for people to report oil price-gouging. Although the Web site doesn’t say what, if anything, the DOE will do about it. On the other hand, Jerry Taylor of the Cato Institute defends price-gouging:

What has really set the moralizers off this time is the revelation that the gouging is often both tightly targeted and coldly calculated. The industry calls it “zone pricing.” Essentially, oil companies examine small geographic areas, consider how much retail competition exists, estimate the willingness of motorists to look elsewhere for gasoline, and price accordingly. Consumer activists are aghast that oil companies would go so far to extract every penny they can out of a gallon of gas.
Price discounting, however, clearly benefits the consumers who receive the discounts. But how about those consumers who pay prices higher than the discount? Economists of all stripes who’ve studied the effect of differential pricing based on the willingness of consumers to search for lower prices have concluded that consumers overall are likely to benefit if sales are higher with price discrimination than without it. That’s because those consumers less sensitive to prices pay more of the fixed costs of doing business.
Regardless, most people view the practice of zone pricing in gasoline markets as unfairly taking advantage of consumers. Yet many of those same people — who will curse a blue streak if you put them in front of a camera and ask them about “Big Oil” — are as we speak putting their houses on the market and enthusiastically gouging the living daylights out of anyone looking for a new home. And what’s more, they’re zone pricing! Surprisingly, however, no one ever rages against real estate price gouging. In fact, the opposite is the case. Business reporters gush about returns and politicians pledge to do whatever it takes to keep the real estate bubble afloat.

Posted by on September 6th, 2005 at 9:49 am


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