Social Question

SQUEEKY2's avatar

In your opinion, what's the difference between a fair profit, and just plain gouging?

Asked by SQUEEKY2 (6730 points ) March 17th, 2014

I have been told as long as your willing to pay the price asked there is no such thing as gouging, really even if the seller is making over a 500% profit?
I am all for retailers making a fair profit, but when does it become an unfair profit?

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13 Answers

Yetanotheruser's avatar

If the commodity is a real or perceived necessity, then anything that exceeds reasonable would, IMHO, be considered profiteering.

pleiades's avatar

I’m in San Diego, I laugh when the prices of oil barrels haven’t moved but just because one gas station hikes their prices the rest follow suits. Essentially I’m laughing at myself because the jokes on me, we really have no choice but to continue to buy gouged prices… It’s rather unfortunate truly

So the difference is that something that is readily available shouldn’t be priced 500% that’s greedy. There is a reason retailers in the fashion market only produced limited run items and for high prices…

Cruiser's avatar

A 500% profit won’t last too long in the free market as competition would get wind of this windfall and duplicate it and sell the same thing for less and usually comes with a made in China sticker.

KNOWITALL's avatar

I think the average profit is around 9 cents on the dollar (marketwatch.com) so I’d say anything over 15 cents for necessities is probably gouging.

johnpowell's avatar

In a normal market thing equalize like Cruiser says. But gouging is usually when you have a natural disaster and you have a limited supply and can’t get more (or only supplier) so you charge outrageous rates. This is illegal.

If supply is normal and everyone is raising prices it is collusion (also illegal).

Hypocrisy_Central's avatar

IMO it becomes unfair profit if it is something you need to have like garbage service, water, or electrical power, where you can’t get it anywhere else; you have no option and the price is set not to cover cost but to basically extort someone. I do not know how much money it takes to manufacture a Lamborghini but I don’t have to spend the $400,000k or more price tag for it; I can get other vehicles at far less money. Electrical power is another thing. I can’t easily just shop another option to power my house. I am forced to use the local power company so if they were allowed to set prices as they felt, to keep the mayo cold might end up being $1,300 a month, living in a small 2 bedroom house!

KNOWITALL's avatar

For comparisons, here’s propane by cents (that is being investifgated)——

The average price per gallon in Michigan, according to the state, was $2.73 on Jan. 20 — and that was $.40 more expensive than a month ago. And since October 2013, the average price per gallon has increased by $.71.

http://woodtv.com/2014/01/30/attorney-general-investigates-propane-price-gouging-complaints/

CWOTUS's avatar

The difference is mainly subjective, related to the viewpoint of the person setting the prices and the person having to pay those prices.

A lot of people think it’s gouging, for example, when a large-scale regional disaster occurs, such as a massive flood or highly destructive hurricane, which wipes out a lot of infrastructure in an area, and sellers of things such as fresh food, potable water and ice, to name a few, jack up the prices to “much higher than normal” rates. The fact of the matter is that after this disaster, those commodities that are in very short supply and difficult to replenish just got a lot more valuable because of the disaster. Expecting the supplier to hold his prices static in the face of overwhelming demand is counter to any rational expectation of economics.

In fact, if worsening shortage + higher-than-normal demand doesn’t cause prices to at least temporarily skyrocket, then the resource that is in such short supply and for which people are so desperate is more likely to be wasted or misused than otherwise.

Take ice, for example, in a summer hurricane that wipes out electricity (and therefore most refrigeration) over a wide area. That ice, because it is now more needed than usual (because no one can make their own, and because people’s refrigerators are holding food that will spoil without cooling) is now more highly valued by everyone. But for some people the need is critical; it can be a life-or-death event if blood banks aren’t kept cool or if insulin isn’t stored properly. Should that be considered the equivalent of “the people who live closest in the neighborhood and don’t want their leftovers to spoil”? I don’t think so, and that’s why I would support the retailer charging very high prices for the few bags of ice that he may have in stock, so that people who need it to save their lives would be able to find it. No one would spend $100 for a bag of ice to chill his beer, so it might be available to the guy who wants it to chill his insulin for a few days.

What @Cruiser said is apt: Prices send signals to suppliers that “here is a market that is worth your while to supply”. At an (allowed) price of $100 per bag, ice would flow to stricken areas like that – and quickly! – bringing prices into a lower equilibrium as supplies increase. It’s very fundamental economics – which very few people seem to understand, and no politicians.

Imadethisupwithnoforethought's avatar

If you feel proud of yourself for rewarding your employees for their hard work at the end of the business cycle, and think you might have shorted yourself a little, no profit margin rises to the level of gouging

rojo's avatar

No such thing. Whatever you can get for it, no matter how large or how small is fair.

Cruiser's avatar

Next question…is gouging OK when it is the super rich that get gouged?

“For every Porsche it sold last year, Volkswagen booked about $23,200 in operating profit, for a margin of 18 percent”

SQUEEKY2's avatar

@Cruiser it’s not ok to gouge anybody,the only bright side to that is the wealthy can weather being gouged alot easier than the poor working slob can.

Cruiser's avatar

@SQUEEKY2 Being gouged is a choice. No one forces anyone to pay any amount for anything and the items we buy where there is no competition like gas, water, electricity are heavily regulated to prevent unfair gouging from happening. No one is putting a gun to your head to buy that $700 Prada handbag that cost them $45.00 to make. I am not denying that people get conned, fleeced and ripped off…that happens all the time. But most if not all people generally pay a price they deem fair for things they want regardless of the percent of the profits involved.

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