We Should be Thankful for Price Gougers

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A few months ago, on the anniversary of 9/11, a couple coworkers and I were telling our memories of the day the attacks happened.  Most of us remember being glued to the TV in silence with thoughts of sorrow, fear, anger, and confusion.  But two of my coworkers were actually on a flight from the west coast on that morning. 

Their flight had to land immediately in Chicago, about 750 miles from Philly.  They had no idea when planes would be able to take off again, so they scrambled to find a way home. To make a long story short, they were fortunate enough to get one of the last rental cars available.  They met a few strangers heading the same direction, then hit the road with their new friends.

As they made their way east on the Indiana Toll Road, they noticed two things; the gas gauge getting close to empty, and gas prices were really high, close to four times what they expected to pay, on the Toll Road.  So my coworker thought if he exited the highway to find a gas station that isn’t at a rest stop, maybe the gas prices would be more reasonable.  However, there was no such luck.  He somewhat jokingly said, “Every gas station in Indiana was gouging us.  They say midwesterners are in bible belt, they’re supposed to be laid back, friendly people, but they’re just as greedy as the rest of us.  They saw an opportunity to raise prices and they took advantage.”

I said in reply, “But you were able to get your gas and get home, right?”

“Oh yea, we got home, but we paid for it”

He can call it greed if he wants, but he probably should have been thanking them for their greed.  When all flights were forced to land and all departing flights canceled, more cars were added to the already busy Toll Road.  Chicago has 2 airports, both are normally very busy.  All the people who flights scheduled to depart that morning were either driving to their destination or going home.  Same with those who had an impromptu landing.  That means the demand for gas went through the roof.

Gas stations had no way to prepare for the increase demand.  They could not order extra gas in advance of the attacks.  They were stuck with their limited supply.  By raising their prices they made sure that the people who really needed the gas were able to get it!  All the other driver who might have had a quarter tank and live locally probably drove right past the gas stations and figured they could get where they were going on the gas they had instead of paying “insane” prices, even if on a normal day they would have stopped.  This raising of the prices meant that gas would be there for those people who were desperate to get to their destination.

Prices quickly came back down to earth in the days following 9/11. Did they gas station owners suddenly stop being greedy?  Did they get a heart and decide to be nicer to the commuters? Probably not.  They would charge those prices every day if the market allowed them.  It’s much more profitable!  But the demand for gas went back to its pre-9/11 level and the gas stations were no longer able to charge those gouged prices.  If they did continue with the “obscene profits”, the high margins would send a signal to the market that more suppliers are needed.  More competition would enter the market at a lower, but still profitable price.

So even though my coworkers both roll their eyes at the price gouging midwesterners, they should be thanking them.  If it wasn’t for the “obscene prices” they probably wouldn’t have made it 750 miles to Philadelphia in the same day.  The gas pumps would all have been empty by the afternoon. That would have forced them to stop somewhere along the trip and find a hotel for the night.  But they’d only be able to find one if the hotels gouged their prices too!  Without price gouging gas stations it would have been an overnight in a rental car, on the side of the road, with a few strangers sleeping next to them!  Price gouging made sure that the people who wanted gas or a hotel the most were able to get what the needed.

 

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