At some point in the indeterminate past, the concept of business-related profits shifted from the positive side of the morality spectrum to the negative side of the spectrum. As a dyed-in-the-wool capitalist, I find this trend disturbing. With inflation in the forefront of the last 3-4 years, the mainstream media churns out a never-ending stream of specific accusations of price-gouging, profiteering, and realization of "obscene" profits. Interestingly, I have never read or heard an empirical description of what exactly constitutes price-gouging. It appears to be a wispy, vacuous claim with various consumers looking at the matter differently. Instead of a widely accepted formula or set of statistics to define price-gouging, there is a subjective "feeling" or sense that the consumer is being exploited. This doesn't fly in my book. I do not subscribe to the concepts of price-gouging and excessive profits.
In the world of physics, gravity is a fundamental interaction that causes the mutual attraction between all things that have mass. In economics, the dynamics of supply and demand represent the fundamental interaction in establishing price points for literally all goods and services. I would go so far as to say the relationship between supply and demand is the very foundation of the economic system we refer to as capitalism. The scarcity of a good or service leads to higher prices, while an abundance leads to lower prices. To a great extent, the financial goal of a business or individual selling a product is diametrically opposed to the financial goal of the business or individual buying the product. A business selling widgets wants to sell widgets for the maximum amount the market will bear and thus maximize profits. Whereas the consumer buying the widgets wants to buy them for the least amount possible and thus minimize their expense. A home seller strives to sell their residence for the highest amount they can secure. While the home buyer attempts to purchase the house for the lowest amount they can negotiate with the seller. It is simply how financial transactions work.
Following are some scenarios that many people would construe as examples of blatant price-gouging. The first three are fictitious, and the final one is not so much: 1.) I purchase a $100 raffle ticket from a charitable organization. The winner of the raffle will land four prime tickets for a Taylor Swift Eras Tour concert. The cumulative face value of the tickets is $6,400. Somehow, the stars line up and I win the damn raffle. I proceed to go on Stub Hub and sell these tickets for twice their face value, or $12,800. 2.) In March I purchase four season tickets for the Chicago White Sox home schedule with no intention of attending any of the games in person. My goal is to make money by reselling (at a premium) the tickets in the secondary market. Although projected to be a mediocre ball team, the White Sox surprised everybody and ended up being one of the best teams in baseball. From early June onward I sell my tickets for consistently more than twice face value. By the end of the season, I have realized a financial windfall. 3.)Based on reviewing reams of data, I strongly believe Florida is going to experience a severe hurricane season. In early July I make arrangements to lease a semi-truck and trailer through October 31st. I proceed to purchase and fill the trailer with Pop-Tarts, peanut butter, bread, bottled water, flashlights, batteries, and generators. My hurricane predictions come to fruition and I head to the hard-hit areas of Florida. I easily sell my entire inventory of products for three times face value and pocket huge profits for my efforts. 4.)In 2015, while Martin Shkreli was CEO of the company formerly known as Turing Pharmaceuticals, the price of the lifesaving drug Daraprim used by AIDS patients was raised from $13.50 a pill to $750 a pill. To say there was a loud and sustained public outcry would be a sizeable understatement. Mr. Shkreli was quickly classified as the antichrist and considered the worst human being since Bernie Madoff became a household name.
I contend that none of the previously detailed scenarios, even #4, should be considered price-gouging or profiteering. In each of these cases, the entrepreneur has exposed himself to risk, financial or otherwise. In the Taylor Swift situation, I took the risk of antagonizing my two granddaughters. With the White Sox tickets, the team could have been terrible, even the worst team in MLB history. The demand could have dried up even to the point where I literally could not give the tickets away. Insofar as the hurricane "play," the risk would be that not a single storm materialized and I was stuck paying for the truck and trailer and selling the hoard of items at a dramatic discount. Lastly, Martin Shkreli was ultimately convicted of securities fraud and sentenced to a stint in prison. His pricing of Daraprim was not illegal. However, the negative publicity garnered the attention of law enforcement and prosecutors. Shkreli painted a target on this back and put his freedom at risk when he aggressively priced a product. The moral of the story is that over-zealous pricing can come back to bite a seller in the future. A business normally does not want to destroy its image and stream of long-term profits as a result of realizing over-the-top short-term gains.
The politicians, regulators, and consumers who rail about price-gouging and corporate greed have a tenuous grasp of economics and reality. Allowed to act in an unencumbered manner, the omnipotent Market in time resolves any issues involving excessive pricing. Monopolies tend to be short-lived in a capitalistic system. History shows us that markets find a way for domestic and foreign competition to eventually surface. As a present-day and forthcoming example, watch what happens to Nvidia's earnings and share valuation as competitors and innovators attack their market share with vigor.
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