More on Government Gouging

Our governor has signed the letter to the FTC requesting an investigation into “price gouging” and “excess profits.” Here is what Lynne Kiesling has to say:
“Remind me to add that [excess profits] to the list of economic non-concepts, right behind “price gouging” and “windfall profits.”
“If you are analyzing price effects along a vertical supply chain, and you have a capacity bottleneck in the middle of that chain, how can you expect historic relationships between the price of the initial input and the price of the final product to persist? That is incredibly naive and reflects a lack of understanding of how vertical supply chains work.
Of course the price of crude oil and the price of gasoline are going to become more disconnected as your refining capacity becomes the binding constraint. Furthermore, when a natural disaster exacerbates that bottleneck, you should expect a further deviation from that historic relationship.
More work for the FTC, which routinely investigates claims of “price gouging” when one politician or another raises the populist hue and cry. The FTC has studies stretching back for almost two decades that show no evidence of anti-competitive outcomes in gasoline markets.”

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