Plane on February 27, 2011, 10:10:23 pm

So he needs to basicly do what his competitors are doing. And they have to coordinate their prices without letting the government see them coordinate their prices because it's illegal for them to do that.



   Really ? I didn't know there was a law against this.

  Don't the owners of gas stations drive around and see the other stations prices? Are they forbidden to discuss prices with fellow businessmen?

  I don't doubt you tho, this would not be the first dumb law ever.

J Thomas on February 28, 2011, 05:54:47 am

So he needs to basicly do what his competitors are doing. And they have to coordinate their prices without letting the government see them coordinate their prices because it's illegal for them to do that.



   Really ? I didn't know there was a law against this.

  Don't the owners of gas stations drive around and see the other stations prices? Are they forbidden to discuss prices with fellow businessmen?

  I don't doubt you tho, this would not be the first dumb law ever.

It's legal for them to drive around and see each other's prices. It isn't legal for them to get together and agree on what prices to set. This is called "price-fixing". If there is evidence they have done that, the government could take them to court and if it's decided they really did do that, they can get in serious trouble. The theory is that they are supposed to do "free competition" and not set up cartels.

Robert Townsend suggested that executives of all sorts should clear out their old records every year. Throw out everything they aren't reasonably sure they'll need. Get rid of all old emails they don't actively need. He said if the government ever goes through your old records they will find something that looks like price-fixing whether you really did it or not.

quadibloc on February 28, 2011, 08:19:37 am
So if he charges a fixed markup on what he pays, he's always out of step. It gets him lots of business but not lots of money while the price is rising, and then it hurts his business and reduces his income when prices fall.

So he needs to basicly do what his competitors are doing. And they have to coordinate their prices without letting the government see them coordinate their prices because it's illegal for them to do that.
Well, he can approximate what his competitors are likely to do, even before he drives around and has a look at their signs, simply by charging a fixed markup... on the spot price of oil in the commodities market, instead of what he paid. So he charges by what the gas he has is worth now, rather than what it cost in the past.

That shouldn't be considered price-gouging, whether it's done by a gas station or a jewelry store.

happycrow on February 28, 2011, 08:38:09 am
China will get that kind of businessmen the same way that, oh, say, Africa will get them. When long-term thinking pays, because property tenure is secure, instead of at the mercy of kleptocrats.

At least China is trying - instituting, within narrow limits compatible with a totalitarian dictatorship, the concept of the rule of law. If it wasn't a human tragedy, it would be funny.

My understanding from folks on the ground is that it's very possible for a small businessman to do his work with minimal harassment, so long as he's got a roof.  Otherwise, I agree completely with your statement.

J Thomas on February 28, 2011, 10:50:07 am

Well, he can approximate what his competitors are likely to do, even before he drives around and has a look at their signs, simply by charging a fixed markup... on the spot price of oil in the commodities market, instead of what he paid. So he charges by what the gas he has is worth now, rather than what it cost in the past.

That shouldn't be considered price-gouging, whether it's done by a gas station or a jewelry store.

"Price-gouging" is an emotional thing. Like, you live in New York City and for five years you buy things from the little corner store. Canned food, fruit, etc. When you need a little oil for your door hinges you get it there. You are friendly with the couple who live over their store and who work pretty much all the time there.

Then there is a blackout. You carefully go downstairs in the dark and you walk down the dark street to the corner store. They have battery powered lights on. You go to buy a flashlight and it's $100. You look at the candles and they're $40. You don't want to walk four blocks in the dark to the next place where the flashlight might be only $80. You thought they were your friends, and now it's an emergency and they're taking advantage of you. Next week when the lights are back on they'll get a new shipment of flashlights and they'll sell them for $3.50.

Likely you'll still feel kind of mad at them. You thought they were your friends and when you needed help they wanted a whole lot of money because you were desperate.

On the other hand, maybe as somebody who lives in NYC you don't expect anything else.

The feeling isn't supposed to particularly make economic sense. Friendly people should give each other a break sometimes. When they charge more then you want to pay they aren't being your good friend.

macsnafu on February 28, 2011, 11:07:39 am

Well, he can approximate what his competitors are likely to do, even before he drives around and has a look at their signs, simply by charging a fixed markup... on the spot price of oil in the commodities market, instead of what he paid. So he charges by what the gas he has is worth now, rather than what it cost in the past.

That shouldn't be considered price-gouging, whether it's done by a gas station or a jewelry store.

"Price-gouging" is an emotional thing. Like, you live in New York City and for five years you buy things from the little corner store. Canned food, fruit, etc. When you need a little oil for your door hinges you get it there. You are friendly with the couple who live over their store and who work pretty much all the time there.

Then there is a blackout. You carefully go downstairs in the dark and you walk down the dark street to the corner store. They have battery powered lights on. You go to buy a flashlight and it's $100. You look at the candles and they're $40. You don't want to walk four blocks in the dark to the next place where the flashlight might be only $80. You thought they were your friends, and now it's an emergency and they're taking advantage of you. Next week when the lights are back on they'll get a new shipment of flashlights and they'll sell them for $3.50.

Likely you'll still feel kind of mad at them. You thought they were your friends and when you needed help they wanted a whole lot of money because you were desperate.

On the other hand, maybe as somebody who lives in NYC you don't expect anything else.

The feeling isn't supposed to particularly make economic sense. Friendly people should give each other a break sometimes. When they charge more then you want to pay they aren't being your good friend.


But you have to consider the economic aspects--If the store only has a dozen flashlights and 100 people want to buy flashlights, who should get them?  Who needs them the most?  Do you just sell them first come, first serve until they're gone, or maybe you wonder who has a more urgent need for a flashlight?
I love mankind.  It's PEOPLE I can't stand!  - Linus Van Pelt.

J Thomas on February 28, 2011, 11:31:54 am

But you have to consider the economic aspects--If the store only has a dozen flashlights and 100 people want to buy flashlights, who should get them?  Who needs them the most?  Do you just sell them first come, first serve until they're gone, or maybe you wonder who has a more urgent need for a flashlight?

That's up to the seller. He can do whatever he wants. I might want to reserve a couple in case friends with an urgent need show up.

If there's some easy way to hold an auction that's good. Everybody bids as much as they want and the highest bidders get it. Nobody should feel particularly aggrieved that there was a higher bidder. But that's hard to do in a blackout.

If you tell people the price is $100 or $50 they will not like it. They will call you a price-gouger. You can live with that, or you can do things some other way. When you're the seller who has something which is greatly in demand, you get to choose.

You might choose to organize a neighborhood watch. Get a dozen energetic people tho walk around looking for problems they can help fix. A lot of people might like that and praise you for it. But if you can sell 12 flashlights for $100 each instead, you'll be out $1200 if you do the thing that gets you all that praise.

terry_freeman on February 28, 2011, 12:20:12 pm
During a blackout, the seller can reasonably anticipate that everyone who was too dumb to stock up on candles, matches, flashlights, and batteries, will swarm his store.

Obviously, he can't stock up enough to please everybody; he has to pay for inventory, he has to pay rent for space to store it. So he has a tough choice. He can leave prices the same as they are, and within minutes, his stock will be sold, and you won't be asking "Do I spend $20 for this pack of batteries, or do without?" -- you'll be faced with an empty shelf. First one gets the goodies. Tough luck to you, sluggard. How's them apples?

To avoid this, the shopkeeper raises prices. This causes customers to re-evaluate their needs. How much do they really need a flashlight, or candles? It also sends a signal to imprudent customers: think ahead.

If the shopkeeper sets prices too high, nobody would buy. At the end of the blackout, his shelves would be full of over-priced goods - so he tries his best to balance supply and demand.

Consider a longer-duration problem, such as hurricane Katrina. A great deal of damage is caused. People want to repair broken windows immediately. How do you get somebody in Ohio to load a truck with plywood and glass and send it to New Orleans quickly, when he could sell that product to local customers at "normal" prices? Answer: you offer him enough money to make it worth his while. The effect of this is to shift resources from lower-valued uses to higher-valued uses. The customer in Ohio was thinking "It's a nice weekend, maybe I'll work on a deck or sun room." - the sort of project which can be postponed a bit. He sees empty shelves, he delays his project a bit. The guy in New Orleans is thinking "I have a gaping hole in my roof and I really need to do something about it." He goes to the shop, and they have plywood, but it costs more than usual. Given the priority of his needs, that's better than the shop being empty. He pays the price and fixes the problem.

Calling it "price gouging" gets in the way of people trying to solve problems. Setting limits on prices will lead to that person not finding plywood or candles or fresh water or whatever at any price.

SandySandfort on February 28, 2011, 01:34:51 pm
The feeling isn't supposed to particularly make economic sense. Friendly people should give each other a break sometimes. When they charge more then you want to pay they aren't being your good friend.

Actually, feelings are part of economic calculations; everything is. As I have said before, it's not just about money. That is why when any business is valued, there is a figure for "good will." In a free society, Mom & Pop can charge whatever they want in an emergency. But if the are intelligent actors, there are real limitations as to what they can reasonably charge. A million dollars for a AA battery? Lots of luck. The upper limit is pretty much the clearing price people will pay. But another upper limit is good will. Soon enough, the emergency will end, but people's memories will continue. In most cases, you can charge something more, without infuriating regular customers, but charge too much and when the emergency is over, they will vow never to shop with you again. Instead, they will walk another block to an almost identical little store and spend their money there. You lose, Buckwheat. So, good will has monetary value. Mom & Pop will ignore it at their peril. If they choose wrong, tough apples. In the immortal words of Super Chick, "They new the job was dangerous when they took it."

quadibloc on March 01, 2011, 02:02:27 am
Likely you'll still feel kind of mad at them. You thought they were your friends and when you needed help they wanted a whole lot of money because you were desperate.
Trying to get rich off of an emergency is a bad thing. Raising prices, in some cases, might indeed help to direct emergency supplies to those who need them most, but it is presumed by most people today that such decisions are better made by relief agencies, firemen, police officers.

Maybe we're statist sheep to think that the state does a better job than the market.

The state could have prevented Katrina from destroying New Orleans (by keeping the dam in repair - in time for a natural 50-year hurricane cycle), but it didn't. That would have involved the statist act of spending tax money.

On the other hand, the state could have prevented the last big New York City blackout by letting the market operate. If New Yorkers want to get their electricity from Quebec, they should have paid for the wires to carry that electricity to them - instead of expecting all the states in between, who didn't need that much electricity, to increase the capacity of their power transmission systems for free.

Instead of it being paid for by the electricity bills of New Yorkers, of course, it could also be paid for by Federal taxes, so a statist solution is possible. What was actually the case, though, was that the Federal government sort of expected New England to be generous and comradely although it was not as wealthy as New York, and just pay for it themselves without complaining. I presume the problem did come about because government got in the way, although I don't have enough detailed knowledge to prove it wasn't just New Yorkers being cheap when it came to electricity.

KBCraig on March 01, 2011, 03:22:49 am

So he needs to basicly do what his competitors are doing. And they have to coordinate their prices without letting the government see them coordinate their prices because it's illegal for them to do that.



   Really ? I didn't know there was a law against this.

  Don't the owners of gas stations drive around and see the other stations prices? Are they forbidden to discuss prices with fellow businessmen?

  I don't doubt you tho, this would not be the first dumb law ever.

It's legal for them to drive around and see each other's prices. It isn't legal for them to get together and agree on what prices to set. This is called "price-fixing". If there is evidence they have done that, the government could take them to court and if it's decided they really did do that, they can get in serious trouble. The theory is that they are supposed to do "free competition" and not set up cartels.

Personal experience: About 20-21 years ago, I spent a couple of years driving a soft drink route. Hard work, not bad money for unskilled labor (beyond having a CDL), but definitely hard work.

Anyway, my district manager was suddenly absent one morning. The director was tight-lipped, only said that the DM was no longer employed by the company, and that was to be our only response if asked.

Turns out, one of the grocery store managers in our district had long suspected the two major soda distributors were colluding, because other stores at the fringe of his sales area were able to sell soft drinks below his purchase cost. So, he used the store's cameras to catch the Soda C and Soda P district managers meeting in the parking lot for almost an hour one day, sitting in one of their company vehicles and talking the whole time, comparing papers, etc. Then he took the video to the FTC, along with documentation of price discrepencies.

I don't know about Soda C, but my Soda P guy was fired on the spot and faced federal charges; I never heard what came of that, but the company itself wasn't sanctioned.

*note*: I don't support the government intervention noted above, nor the government restrictions that allowed major corporations to monopolize trade within certain geographic areas. I'm just confirming that yes, price collusion is seriously illegal.

Plane on March 01, 2011, 10:17:39 am
Is that smart or dumb law?

terry_freeman on March 01, 2011, 01:08:49 pm
Likely you'll still feel kind of mad at them. You thought they were your friends and when you needed help they wanted a whole lot of money because you were desperate.
Trying to get rich off of an emergency is a bad thing. Raising prices, in some cases, might indeed help to direct emergency supplies to those who need them most, but it is presumed by most people today that such decisions are better made by relief agencies, firemen, police officers.

Maybe we're statist sheep to think that the state does a better job than the market.

It may be presumed by people, such as yourself, who are demonstrably ignorant of economics, that the state can do a better job than the market. As for the rest of us, no.

In Real Life, your fantasies don't work as you wish they would. The State actually disrupts markets. FEMA, for example, turned away trucks full of goods which were needed for relief efforts. Beging a statist sheep, you may bleat something about that being an "exception to the rule", and that "next time, of course, a better-regulated State will make better decisions", but you have yet to show us any mechanism which - in the real world - actually improves the behavior of the State as efficiently as the spur of profit-and-loss has been shown to improve the behavior of entrepreneurs.

If you were honest, you would wave your hands and say that "the democratic process will allow us to cast one vote out of a million which, if we are lucky enough to persuade half a million other people to vote with us, will elect a candidate whom we hope will change the actions of a bureaucracy of millions of people who have no particular economic incentive to improve efficiency."

Or, you could just stick with the handwaving and histrionics.