Brazil’s fine line between price gouging and turning a profit

Sabri Ben-Achour Oct 21, 2013

Brazil’s fine line between price gouging and turning a profit

Sabri Ben-Achour Oct 21, 2013

If you’re looking to book a hotel room for next summer’s World Cup in Brazil, look out. Prices at some hotels have risen 500 percent for World Cup season. Brazil’s president Dilma Rousseff is setting up a committee to head off price gouging. 

But what is price gouging, exactly?

“It’s hard to pin point exactly where price increases stop being the normal operations of the marketplace and start being something morally problematic,” says Matt Zwolinski, who teaches philosophy at the University of San Diego.

In the end, it’s a pretty vague term that basically means “charging prices people don’t like,” he says.

Many consumers might distinguish between a seller raising prices because they must ­– for example, if it suddenly becomes more expensive to ship in bottles of water, prices rise — and raising them because they can.

“A lot of what bothers people about ‘price gouging’ is that they believe the seller is raising prices merely in order to satisfy his or her own greed,” says Zwolinski. “That’s a common perception, and I think that is a common source of the distaste, the moral shock that people feel when thinking about cases of price gouging.”

But that greed-driven desire to raise prices is always there, and all of us are capable of it. Simply raising prices because a seller can isn’t always morally questionable, it’s part of the basic machinery of pricing. 

The issue is what allows a seller to raise prices and get away with it. 

If it’s simply that more people want a product than can have it, higher prices might ration scarce resources efficiently (the people who don’t really need the motorcycle won’t bother getting it, the people who really do need it — and can afford it — will fork over more money). That doesn’t really help, of course, for the people who really do need it but can’t afford it. 

At least in the short term. In the long term, if markets act as they are supposed to, more producers of motorcycles might enter the market, increase the supply of motorcycles, and let the price back down.

The line that people often draw between the is when it comes to basic necessities says Jeremy Snyder, who teaches health science at Simon Fraser University. 

“It’s a little more morally problematic if you’re looking at things that are necessary to maintain your humanity, maintain your life,” he says.

Like after a natural disaster — if you’re the only guy with water bottles and you’re charging a hundred bucks a bottle just because you can, you’re a jerk. Officially. There’s not enough time for the market to react, and it’s not like people can bargain over basic necessities like they might over chewing gum or something.

It reflects a basic disrespect and callousness to the plight of other human beings, says Snyder, and takes advantage of desperation. 

But nobody really needs to go to the World Cup. And “given that the World Cup is about six months off, there’s still enough time to potentially increase the supply,” points out Snyder.

That could mean people using online sites like Airbnb to rent out spare bedrooms, or bringing in extra airlines (that would require government intervention) to offer limited short term increases in supply in the case of airline tickets. 

Basically, with a little advance notice, greed can be used as a tool against itself. That’s the market functioning. In an emergency, where there’s no time and basic needs are at issue, that’s price gouging.

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