As COVID-19 reshapes our economy, our newsletter will help you unpack the news from the day.
The economics behind why toilet paper is sold out
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This is part of our “Econ Extra Credit” project, where we read an introductory economics textbook provided by the nonprofit Core Econ together with our listeners.
Price discrimination is baked into a lot of mundane daily transactions.
“If we see a sale; if we see coupons; if the price is different for seniors or students at a movie theater than it is for adults — all of that counts as price discrimination,” said Homa Zarghamee, an economics professor at Barnard College who advises Core Econ, the publisher of the open-source economics textbook Marketplace’s David Brancaccio is reading with listeners.
We’re perhaps most accustomed to it when we’re buying airfare, knowing that purchasing a ticket months in advance will likely be cheaper than buying it the night before.
Price discrimination looks a little different in this era of novel coronavirus, however. On eBay, right now, people are still selling packs of toilet paper at inflated prices given the bare shelves in some stores. Many sellers are presumably profit-seeking scalpers, who grabbed the TP early.
When stores can’t use dynamic pricing when demand surges — because in an emergency, we call that “price gouging” — one consequence is the scalping, a so-called “secondary market.” Some see “efficiency” in letting stores or scalpers jack up prices to what ever people are willing to pay.
But, Zarghamee says, you have to account for income inequality.
“Of course, that’s revealing something that’s already true in markets, which is that your willingness to pay determines whether you’re going to get the good to begin with,” she said. “But what gets lost in a lot of this talk is that the term ‘willingness to pay’ makes it in some sense sound like we’re all starting with the same amount of money. And so our willingness to pay is a good indication of how much we actually want something. And that gets very distorted when you have inequality because, really, what willingness to pay is, is your willingness and ability to pay. And so somebody with much higher income will always be willing to pay more because they’re able to pay more.”
Click the audio player above to hear the full interview.
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