Is it ever fair for a business to price gouge customers?

[Crazedclerkthe2nd]

Reading the stories about the recent air travel issues in Europe I noticed many mentions of hotels that had jacked their room rates sky high because suddenly they had a large pool of stranded and desperate people to take advantage of.

Thinking about it at first made me upset, but then I pondered it a little more.

Consider this:

You run a hotel near an airport. Your usual rate is say $65/night. Suddenly there's a natural disaster/terrorist attack/major disruptive event that causes people to become trapped at the airport.

Customers flood in to your hotel looking for rooms. Being a smart businessperson, you quickly realize the demand for your rooms is MUCH higher than the supply, so you jump your rates up to $100/night. Then you have people willing to pay even more for your rooms so you start accepting even higher rates and making a ton of money in the process.

Have you really done much wrong?

How about another product based example:

The demand for Ipods suddenly goes sky high. Apple can't produce enough of them to keep up, the after sale market is fetching prices much higher than standard retail. In response, Apple raises the retail price of the Ipod, simply because they figure the demand is so strong customers will be willing to pay even more for the product.

Again, from a business point of view that makes sense.

But of course there are always limits. There was the much publicized story of the Starbucks in NYC who tried to charge 9/11 workers out the nose ($100 I think) for a case of bottled water. Of course everyone got pissed at Starbucks and they eventually relented.

But the point stands: If your demand suddenly goes through the roof, what's wrong with raising prices in response?

[Rapscallion]

From a business standpoint, you can go one of two ways. The first is the 'gouging' and make the most of the opportunities. The second is longer term, such as grabbing good publicity and retaining future custom.

Let's face it, businessmen able to throw a few hundred dollars for a room at a manager in a $65 per night establishment aren't going to go back there when there's no emergency, but the people who can only pay that are going to be the repeat customers.

I know of one fuel station semi-locally that had some fuel left when the fuel strike was on over here. Up went the prices, and they got the money. Lost a load of repeat custom and went out of business a few months after.

Then there's the moral side of things. In the Ipad situation, I don't really care - that's business, and not having the latest cool gadget isn't going to cripple someone. However, forcing people to sleep rough unless they pay more than they can afford? That's immoral by my standards.

Rapscallion

[daleduke17]

A lot of gas stations around here did just that when 9-11 happened. They skyrocketed their prices to the unacceptable amount of $2.50/gal (I'd like to see that amount now). Got their asses sued for illegal actions.

I'm all for capitalism, but, sometimes there needs to be a little restraint shown, and maybe a little government intervention (the State's Attorney in Illinois sued Caseys General Store and a few others in the above case).

[Boozy]

In the US, it is a federal crime when price gouging occurs during declared civil emergencies (ie, a local store tripling the prices of generators directly after a hurricane). Although this is in response to heightened demand, the government reserves the right to temporarily and locally create price ceilings on essential items.

Outside the law, the term "price gouging" or "profiteering" is not related to supply and demand. In economics, it usually refers to a practice involving price fixing (collusion between competitors) and coercion. These are practices that tamper with the freedom of markets rather than working within it.

[Nyoibo]

In the first example it is wrong, simply because in the first instance it's a necesity, people need somewhere to stay and sleep, people can live without iPods.

[jackfaire]

Is its OOOOOO profit or OOOOOOO higher costs?

A hotel that isn't used to that many guests may not have the staff needed to handle the workload and thus be paying overtime to the staff they do have.

A raise in rates would allow them to cover that overtime without a loss. Their utility bills would also rise above the normal levels they see due to this incident. Also is it a chain hotel or independent.

Being an independent they can't absorb the losses as well as a chain of hotels.

IPODS if they are selling more than they are making then they need to make more and that costs money, adding equipment, shifts maybe even another plant would cost money thus justifying a raise in price.

Sometimes it isn't price gouging it is just the company trying to stay in business.

[Tanasi]

In the first example it is wrong, simply because in the first instance it's a necesity, people need somewhere to stay and sleep, people can live without iPods.

A hotel isn't a necessity. In situations like this all you "need" is food and shelter. Comfort (the hotel room) isn't a necessity. I've spent a few days in an airport waiting when a hotel room wasn't available. I didn't like it but it beat the heck out of squatting in the mud under a tree in the rain (and I've also done.)



Related to this can not folks go further south via train say Spain and then fly out???

[AdminAssistant]

Related to this can not folks go further south via train say Spain and then fly out???

I know my professor is also trying that - but keep in mind there are a lot of people who are also trying to do that and Spain only has so many airports.

Related to the first thing you said, I feel a safe place to sleep is a necessity.

[Peppergirl]

I know my professor is also trying that - but keep in mind there are a lot of people who are also trying to do that and Spain only has so many airports.

Related to the first thing you said, I feel a safe place to sleep is a necessity.

As someone whose job it is to find people flights (and I worked this past weekend), Madrid and Barcelona don't have any flights to the US until well into next week. Everyone had the same idea.

[HYHYBT]

A raise in rates would allow them to cover that overtime without a loss. Their utility bills would also rise above the normal levels they see due to this incident. Also is it a chain hotel or independent.

A hotel's utility cost per guest should go *down* as the number of guests goes up; each person uses about the same amount of water and electricity, and common areas like hallways and lobbies are a constant.

[Tanasi]

I know my professor is also trying that - but keep in mind there are a lot of people who are also trying to do that and Spain only has so many airports.

Related to the first thing you said, I feel a safe place to sleep is a necessity.

While I tend to agree that most times a safe place to sleep is a necessity but there is times when it's a luxury and luxuries are generally expensive. We've all seen pictures of folks stranded in airports sleeping on the furniture and floors. Hotel rooms are a perishable commodity so you have to get what you can while the getting is good. Here in my AO on football weekends every hotel, motel, and flop-house jacks up their rates because they know they can get what they're asking.

My middle daughter is getting married next month and they're going to honey-moon in Europe by backpacking for 2 months. They are worried about getting there I suggested to look into a one-way passage on a ship, so they are. Frankly I haven't lost a blamed thing over there and really don't care to return (no offense to our EU friends) then again I'm a home body and I love being on my farm.

[DrFaroohk]

A local c-store did that about ten years ago when we had this bigass storm and the power was out over half the state. They decided to triple the price of batteries during this time.

I almost think they got in some serious trouble for it, but I can't really remember.

[jackfaire]

This brings to memory a gas station I once used to frequent. This guy who had a gas station outside of town by a few miles was selling his gas cheaper than the people in town. I noticed his place on the way to visit a friend that lived in the next town over.

I started buying my gas from him and told everyone else. After he started selling a ton of gas he raised his prices to higher than that of anyone in town.

He lost a lot of business. No one was going to drive out of their way for him now.

[lordlundar]

There actually is a business where gouging isn't just acceptable, it's expected and encouraged.

The cosmetics industry. It's true. Most "high end" cosmetics are ridiculously overpriced and it's the business norm. One company actually did market an affordable high end cosmetics line (which out performed ones that were 3+ times the price) and couldn't sell them because customers expect that the only way a high end cosmetic would be good quality was if it's expensive.

[jackfaire]

couldn't sell them because customers expect that the only way a high end cosmetic would be good quality was if it's expensive.

AKA If diamonds are everywhere they are worthless