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Comment by darawk | Hacker News Reader

Well, economic theory would ordinarily indicate that supply would increase to meet demand. That is, if a plane ticket starts costing $6500 for an economy seat, more people will enter the airline industry, and the prices will fall. And in the case of more elastically supplied goods (e.g. water) during a disaster, that's probably correct. But airplane seats are fairly inelastic. So, I think that's the tension we're seeing here. I'm not sure what the solution is though. The reason for the high price is fundamental: there are a limited number of seats available. You'd better believe every available seat will get sold to someone, and they have to be allocated somehow.

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> they have to be allocated somehow

There's a proven algorithm to allocate scarce resources without price-gouging.

That algorithm is called "first-come-first-served-with-quantity-limits".

This is the best algorithm to emerge a black market. Then you can have both first-come-first-served AND price gouging!

Given the existing laws, stores engaging in price gouging essentially are a black market. You don't stop trying to manage a disaster just because there's no perfect solution.

No, that's simply 'market'. It becomes black only when you outlaw it in an attempt to enforce perceived fairness† but not backing the supply side.

[†] we can argue long and hard about morality of "first to grab wins" vs "deepest pockets win", but let's agree in most societies neither is seen as a virtue.

I doubt its as efficient. People will still buy as much as they can and then turn and sell their surplus. Unless you can accurately gauge their need, which is requires way more work. "Price gouging" will allow the most efficient utilization of goods. While they likely will price out the less wealthy, the goods will help more people in general.

This doesn't even address the infrastructure and politics behind setting prices and managing limits. Changing price is faster, easier, and more efficient.

It also leaves out the political power involved. Someone in charge of setting limits probably gets to makes sure they, their family and friends all get resources before anyone else. You just trade the power of wealth for political power.

This in my mind becomes a trade off between helping the most people, and having less bias (because politics) towards who you help.

> I'm not sure what the solution is though.

The solution is pretty obvious, require that companies don't raise prices during a disaster. That might mean they don't quite maximize profits, but it also gives everyone a shot regardless of their wealth. Anti price gouging laws are pretty common and are nearly universally popular.

> it also gives everyone a shot regardless of their wealth

No, it doesn't. It means there's no incentive for entrepreneurs to go to great lengths to increase the supplies of (e.g.) bottled water during a disaster.

It doesn't mean everyone gets what they need, it means only the first few people get what they need.

And yet businesses in the real world are working hard to increase supply of these very goods right now just so that they can sell them at a regular price. Some companies even give away stuff like bottled water, what's the economic explanation of that?

tl;dr left out of your economic models are things like good will and civic pride.

They're not working as hard as they would be. And there are no new entrants to the market. Sure, companies might, on their own good will, work hard to deliver more water bottles. But if people are buying water bottles for $100 a pop, i'm gonna drive over there myself with a case of Arrowhead, and i'd bet so are you. High prices motivate people who wouldn't otherwise involve themselves to provide the supply. This is the essence of a market. Markets abhor an arbitrage opportunity, and price gouging is an arbitrage opportunity.

Being lucky enough to be first in the queue doesn't make you more morally deserving any more than being lucky enough to be rich. Worse, making it illegal to raise prices constrains supply so that a lot fewer people can be helped.

I'm not saying that absolutely everything should necessarily be allocated by price. Making it illegal to allocate things by price makes sense in the case of something like land whose supply is inelastic. If you want to say the price of land should be controlled and nobody should be allowed more than their fair share, okay; it's not like a price increase will allow more to be supplied. But clean water and airline seats have an elastic supply, and outlawing allocation by price means there will be less to go around.

A recent article I read regarding that illustrated the point a bit from the other side. One of the airlines artificially capped their prices to $99 per flight, and predictably sold out very quickly. That did very little good to all the truly desperate people (Luckily, other airlines that didn't cap had open, but pricier, seats).

What this meant was that people who weren't necessarily in all that much danger, or had plenty of time to evacuate via other means, used up all the tickets. But the ones that were really needy and couldn't use other evacuation means, E.g. pregnant women, were not even given the option of the higher price.

...and then Air Canada sent down more flights to get people out.

http://www.marketwatch.com/story/r-e-p-e-a-t----air-canada-o...

In the event of irregular operations, the supply of seats is somewhat elastic.

Who's to say that those in most need can afford the gouging? If the price is allowed to flex based on demand, only the rich could afford the service, and money != need.

I'm not saying that that can't happen. There are probably people that are needy and can't afford the increased prices.

But, by making it "cheap" enough for the poor & needy to pay, you've effectively made it "cheap" for the poor and not needy to pay as well. The latter group being much larger and will probably drown out access for the former, so it's a lose-lose if you ask me.

"There are probably people that are needy and can't afford the increased prices."

I would imagine most people fall into this category during a crisis.

Access is "drowned out" for everyone ... equally. The alternative is that only the rich have access. Which is better? In both scenerios people die, except in one onnly one class of people die.

My point is there should be no "economic" model for private business in a natural disaster where lives are on the line.

Then isn't it a proof that the economic theory doesn't work in practice? We're talking two economy seats paying the price to charter the whole jet: https://www.privatefly.com/us/private-jets/large-airliner-hi...

The charter cost from PrivateFly looks like it includes allowances for empty-return flights etc.

The actual block hour cost for a 737-800 is a third that rate. eg. $3500/Hr.

For a small group, something like a CJ3 is more typical.

https://www.privatefly.com/us/private-jets/small-jet-hire/Ce...

$2676/Hr on PrivateFly

Here is the block hour cost for a variety of small airliners.

http://www.planestats.com/bhsn_2017mar

737-800 is $3500/Hr depending on the operator. $6785 per economy seat for a 2 Hour flight is outrageous.

I don't think the issue is elastic versus inelastic goods. The issue is the barrier to entry in the market.

If water bottles were selling for 20 dollars each, and I were in an unaffected but relatively nearby area, I might load my truck with a couple thousand water bottles that I buy for 50 cents, drive for a day, and enjoy a big return. In this way, the market is extremely useful. People like me are motivated by profit incentives to move the resources that people in the disaster area need to them. This is because the water bottle market has a very low cost to enter.

Conversely, the airline market has a very high cost to enter. Even if I would like to take advantage of high prices, I can't get myself a passenger plane, necessary permits, agreements with airports, etc, in time to do anything about the hurricane. On the other hand, people with small private planes may be able to fly their planes down, and take on passengers, in a profitable way, and that may be an incentive for more of them to do so than would otherwise.

Some fun context: Walmart is selling water at normal prices and shipping it in from distribution centers as far away as Nevada.

> Well, economic theory would ordinarily indicate that supply would increase to meet demand.

That's precisely it, it's just a theory and it doesn't apply here.

How are they supposed to increase supply of bottled water during a category 5 hurricane?

Supply is only half of "supply & demand". Price increases discourage buying more than you need, which can help ensure that more people are able to get the things they need.

Unfettered price increases may not be the best solution, but capping prices too low just creates different problems.

Yeah, I'm sure the gas stations selling the gas at $20/Gal are thinking about the greater good of the community.

The whole point of capitalism is that individuals pursuing their collective self-interest actually promotes the public interest more effectively than if each of those people tried to help each other.

In the long run you would see supply increases for an inelastic good, but, due to the demand shock that is a natural disaster, the demand curve moves to the right in the short run, thus increasing price.

Not sure what the best solution is, though.

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