The Ethics of Price Gouging

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THE ETHICS OF PRICE GOUGING

Matt Zwolinski

Abstract: Price gouging occurs when, in the wake of an emergency, sellers of a certain necessary goods sharply raise their prices beyond the level needed to cover increased costs. Most people think that price gouging is immoral, and most states have laws rendering the practice a civil or criminal offense. The purpose of this paper is to explore some of the philosophic issues surrounding price gouging, and to argue that the common moral condemnation of it is largely mistaken. I will make this argument in three steps, by rebutting three widely held beliefs about the ethics of price gouging: I ) that laws prohibiting price gouging are morally justified, 2) that price gouging is morally impermissible behavior, even if it ought not be illegal, and 3) that price gouging reflects poorly on the moral character of those who engage in it, even if the act itself is not morally impermissible.

1. Introduction

I

n 1996, Hurricane Eran struck North Carolina, leaving over a million people in the Raleigh-Durham area without power. Without any way of refrigerating food, infant formula, or insulin, and without any idea of when power would be restored, people were desperate for ice, but existing supplies quickly sold out. Four young men from Goldsboro, which was not significantly affected by the storm, rented refrigerated trucks, bought 500 bags of ice for $1.70 per bag, and drove to Raleigh. The price they charged for the ice was $12 per bag—more than seven times what they paid for it.' This kind of behavior is often referred to as "price gouging." Many states. North Carolina included, prohibit it by law. And even when it is not legally prohibited, it is generally thought to be exploitative and immoral.^ The purpose of this paper is to explore the philosophic issues surrounding price gouging, and to argue that the common moral condemnation of it is largely mistaken. I will make this argument in three steps, by rebutting three widely held beliefs about the ethics of price gouging: 1) that laws prohibiting price gouging are morally justified, 2) that price gouging is morally impermissible behavior, even if it ought not be illegal, and 3) that price gouging reflects poorly on the moral character of those who engage in it, even if the act itself is not morally impermissible. The core of my argument will be that

© 2008. Business Ethics Quarterly. Volume 18, Issue 3. ISSN 1052-150X.

pp. 347-378

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BUSINESS ETHICS QUARTERLY

standard cases of price gouging provide great benefit to those in desperate need, that they tend to lack the morally objectionable features often ascribed to them such as coercion and exploitation, and that attempts to prohibit the practice will harm individuals who are already vulnerable and can least afford to bear further harm. The argument of this paper is an exercise in non-ideal theory.^ Much of what bothers us about price gouging, I suspect, is the fact that it takes place in a social context where the background political and economic institutions are less than fully just. Many people object to the inequality which pervades the distribution of wealth and social services in the United States, and worry that price gouging either exploits or exacerbates that inequality. The real problem, such people might say, is not price gouging itself but the more fundamental issue of an unjust basic structure. I do not wish to deny that questions about the basic structure are important. But they cannot be the only questions that are important. If our basic structure is unjust, then we still need to decide how individuals should act, and how particular policies should be formulated, in the context of our unjust society. Part of what we should be doing, to be sure, is trying to make the basic structure more just. But assuming that this goal will not be achieved immediately, we still need to decide what to do about price gouging here and now. Before we can proceed to...
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