Case Study

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School

George Washington University *

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Course

2001

Subject

Economics

Date

May 7, 2024

Type

pdf

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Uploaded by JusticeFogPheasant38 on coursehero.com

What is price gouging? - Increasing price unfairly/in a way that isn’t based on increased production cost,etc. - During period of supply or demand shock - What are its defining features? - Market dominance/limited sellers (i.e., Monopolies) - Spike in demand/drop in supply - Often essential goods - Might have to be during a period of emergency (Hurricane, pandemic, etc.) Who are the actors in the case? - Platforms (Amazon, eBay, etc.) - Sellers - Consumers - Government/Regulatory Local Knowledge: Who has it and how do they use it? - Seller (taking advantage of high demand in cities, rural area doesn’t have same demand) How do consumers economize? - Prioritized getting N95 masks to healthcare professionals What barriers to the price mechanism were used in this case? - Price ceiling Who created or imposed the barrier? - The government (with existing price gouging laws) - The platforms What was the consequence? - Resulted in thousands of sellers not being able to sell their products - Stockpiles of products could not be distributed to those still willing to pay a premium Thinking strategically - Main goal is to make as much profit as possible given the situation - Actions available include switching to different platforms if restrictions are placed on the ones previously used, attempting to create a new account on that original platform, or selling abroad to a location without restrictions - Depending on if the action is intended to be more profit based or more ethically based, either continue to accumulate inventory and sell, or maybe donate the inventory to those that need it like the guy in the article

1. Who are the actors in this case? That is, who is making decisions? Be thorough. (bullet points acceptable) a. The actors in this case consist of the third party sellers, the consumers, the government, Amazon and other platforms selling the hand sanitizer, the hand sanitizer brands. The third party sellers are the ones getting the goods and selling and marking them up for the consumers with a need and demand to buy the goods. The government is a decision maker as they apply their jurisdiction in price gouging through passing laws that combat it, such as California barring sellers from increasing prices more than 10% in a declared emergency. Amazon and other platforms like it are decision makers in how they manage the price gouging by removing sellers. Finally, the hand sanitizer brands are a decision maker because they originally set the prices of their goods low enough for sellers to price gouge. They also need to account for the demand and increase their production to meet them. 2. Give one example of use of local knowledge by an actor in the case. a. One example of a use of local knowledge by an actor in this case was the way in which Colvin accumulated his resources. He knew that there was an elevated necessity for essential supplies such as purell and masks in cities due to the pandemic. Therefore he went to more rural areas (he uses an example of: “the Dollar General in the middle of nowhere outside of Lexington, Ky,”) to buy them, because their prices were much lower. By then listing them online for a much higher price he was able to turn a significant profit because he deduced that buying from an area with lower demand and selling to an area with higher demand would benefit him. 3. Give one example of economizing behavior by a consumer in the case. a. One example of economizing behavior by a consumer is the consumers specifically prioritizing the N95 masks to be distributed to healthcare officials. The nurse in particular mentioned in the article was specifically looking for N95 masks and clorox wipes, which third party sellers would take advantage of by hoarding these particular masks and hygiene products and significantly increasing the price, taking advantage of their essentiality. These specific needs by consumers due to Covid protocols could ultimately enable arbitrage and price gouging. 4. Give one example of a barrier to the price mechanism in the case. What actor (or actors) created or imposed that barrier? a. One barrier to the price mechanism in this case is the existing price gouging laws in place. For example, New York’s law which prohibits sellers from charging an excessive price during emergencies or California’s law that prevents sellers from increasing prices by more than 10% during emergencies. Laws like these in New York and California set a barrier in place to bar sellers from extreme price gouging. The actors that created these barriers are the NY/CA government/law makers. 5. Choose one actor. In approximately five sentences (bullet points acceptable): What are this actor’s objectives or goals? What actions are available? What is the best course of action for this actor? a. One group of actors are the resellers of the products. Their objective is to make a profit off of their original investment. With additional restrictions being imposed by platforms such as Amazon and eBay, the number of actions available have decreased for these actors. Alternatives such as selling these products locally, reducing their margins in a way that satisfies the platforms, and/or donating these products to those in need would all be feasible actions. If these sellers had previously made a significant profit off the reselling of these essentials, they could decrease their taxed income by donating the excess inventory, which would provide them with a tax deduction. Otherwise, it would be ideal for these actors to be able to recoup their initial investment by either selling their inventory at cost or slightly above cost.

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