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Surge Pricing and Price Gouging: Public Misunderstanding as a Market Imperfection

Author

Listed:
  • Steven Suranovic

    (Department of Economics/Institute for International Economic Policy, George Washington University)

Abstract

This paper evaluates the economic and ethical effects of sudden excess demand for goods or services. The normal market response of “surge prices†or “price gouging†invokes sharp negative reactions by consumers who consider the profit seeking market response to be unethical. Public condemnation often prevents merchants from following market signals, or induces governments to intervene by implementing price ceilings. This paper argues that public misunderstanding preventing efficient and fair outcomes is the true market imperfection in these cases. The paper provides reasons for the public misunderstanding and suggests that demonstration effects would be the most effective way to induce more favorable market outcomes.

Suggested Citation

  • Steven Suranovic, 2016. "Surge Pricing and Price Gouging: Public Misunderstanding as a Market Imperfection," Working Papers 2015-20, The George Washington University, Institute for International Economic Policy.
    • Handle: RePEc:gwi:wpaper:2015-20
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    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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