The Free Market and Price Gouging: A Natural Phenomenon

When it comes to understanding the behavior of prices and supplies in the market, many people view the concept of price gouging as an inherently unfair and unethical phenomenon. However, from a purely economic perspective, price gouging can be seen as a natural response to sudden demand spikes. The idea is that when there is a high level of demand for a product, such as a graphics card or gasoline, companies will raise their prices in order to maximize their profit.

This concept may seem distasteful at first, but it is ultimately driven by the principles of supply and demand. When a company's inventory is depleted due to high demand, they are left with limited stock that must be sold at the highest price possible in order to make a profit. This can lead to higher prices for consumers who still want to purchase the product. In fact, this situation can be seen as a self-correcting mechanism, where companies will raise their prices until the supply of the product is depleted or other competitors enter the market with lower prices.

For example, in the wake of natural disasters such as hurricanes, suppliers may raise prices for essential goods like gasoline in order to capitalize on the increased demand. This phenomenon can be seen in various industries, including technology and consumer goods. In the case of graphics cards, a sudden increase in demand due to gaming enthusiasts or cryptocurrency miners can lead to higher prices at retail stores.

In contrast, if suppliers had maintained their usual pricing strategy, consumers would have experienced a market shortage in full force. Those who demanded the product most would have been willing to pay the highest price, driving down prices for others or forcing competitors out of business. This is ultimately how markets work and can be seen as a more efficient mechanism than government intervention.

However, there is another type of price gouging that is considered unethical: cartels. When a group of companies, particularly oligopolies, decide to raise prices collectively, it creates an unfair market situation for consumers. In the United States, this type of behavior is strictly regulated by the Federal Trade Commission (FTC), which would intervene and force prices back down if such practices were observed.

In general, many people on both sides of the free-market debate tend to disagree on whether government intervention should be allowed in situations where companies raise prices due to increased demand. While some argue that markets are inherently unfair and that governments must step in to prevent price gouging, others believe that the natural response of companies to high demand is a sign of a functioning market.

In either case, understanding the underlying mechanisms driving prices and supplies can provide valuable insights into how markets behave. By examining real-world examples like those seen in the wake of natural disasters or technological trends, we can gain a deeper appreciation for the complex dynamics at play in the free market.

The Role of Government Intervention

There is an ongoing debate about whether government intervention is necessary to regulate price gouging and ensure fair prices in markets. On one hand, some argue that without government regulation, companies will take advantage of consumers by raising prices during times of high demand. This can lead to unfair market situations where certain groups are exploited.

On the other hand, proponents of free markets believe that companies will naturally respond to increased demand by adjusting their pricing strategies in a way that reflects consumer willingness to pay. They argue that government intervention can distort market signals and create unintended consequences that ultimately harm consumers.

Ultimately, whether or not government intervention is necessary depends on one's perspective on the role of the state in regulating markets. Some people believe that government regulation can help protect consumers from exploitative practices by companies, while others see it as an infringement on individual freedom and a distortion of market forces.

The case of cellphone companies raising prices collectively is often cited as an example of cartel behavior and an argument for government intervention. If several major cell phone providers were to raise their prices simultaneously, it would create a situation where consumers have little choice but to purchase the service at the higher price. This can lead to a lack of competition and unfair market practices that benefit some companies at the expense of others.

In this scenario, the Federal Trade Commission (FTC) would likely intervene to prevent such behavior and force prices back down. The FTC is responsible for enforcing antitrust laws in the United States, which prohibit companies from engaging in anti-competitive behavior.

Survival of the Fittest

Another perspective on price gouging is that it is a natural consequence of market forces when supply is limited. When a company's inventory is depleted due to high demand, they have several options: lower their prices, raise production, or exit the market altogether. In most cases, companies will choose to reduce their prices in order to stimulate sales and maintain revenue.

This approach can be seen as a form of "survival of the fittest," where companies are forced to adapt to changing market conditions and consumer demand. By responding to high demand with higher prices, companies can maximize their profit and ensure long-term survival in the market.

In this scenario, consumers who still want to purchase the product will be willing to pay the highest price, driving down prices for others or forcing competitors out of business. This is ultimately how markets work and can be seen as a more efficient mechanism than government intervention.

Real-World Examples

Price gouging and its consequences can be observed in various real-world scenarios, including:

1. **Hurricane-related fuel shortages**: During hurricanes, gasoline demand often increases significantly, leading to price spikes at retail stores.

2. **Cryptocurrency mining**: The rapid growth of cryptocurrency prices has led to increased demand for graphics cards and other specialized hardware, driving up prices on the secondary market.

3. **Gaming console shortages**: Shortages of popular gaming consoles have led to price hikes due to high demand from gamers.

In each of these cases, companies respond to increased demand by raising their prices, which can lead to higher prices for consumers who still want to purchase the product. While this may seem unfair at first, it is ultimately a natural consequence of market forces and the principles of supply and demand.

"WEBVTTKind: captionsLanguage: enso for those who follow me on Twitter you have a bit more insight into my personal life most of you there know that I've already graduated my engineering degree and right now I'm currently working on my masters in Business Administration it's a concentration in finance in particular and in my first semester I actually took a course on micro economic theory and there I learned a bit more about the perfect competition model which is what I want to talk about this video regarding graphics cards in a nutshell perfect competition is defined by five assumptions the first is that market consists of many buyers the second requirement is that the market consists of many sellers three the firm's that sell in the market are free to either enter or exit the market at any time the fourth requirement is that the goods sold by the sellers in the market are assumed to be homogeneous in this case it's a particular good at two graphics cards and we'll assume that the multiple GPU variants and slight clock speed deviations are that are homogeneous and number five buyers and sellers in the market are assumed to have perfect information this means that all resources and pricing strategies are known by all buyers and sellers in the market now obviously the buyers in this market are us we are the consumers we want the graphics cards it doesn't matter what we intend to use those graphics cards for could be gaming mining content creation the purpose of the purchase is irrelevant the fact is we are in the market to purchase graphics cards when interest in ether Speight that's the popular online currency so many are mining nowadays aetherium graphics card demand spiked in particular rx for 80s for 70s 5 80s and 5 70s and GTX 10 60s 10 70s and 10 80s pretty much every mid to high range graphics card on the market all skyrocketed and demand older cards including the r9 390 also flew off the dusty shelves of retired PC gamers so we the buyers created this bubble most of us understand the basic supply demand structure as demand shifts to the right equilibrium price rises but this video will seek to dive much deeper into the matter what essentially happens here what happened with the graphics card market was that the perfect competition model was broken turned upside down from our 5 rules rule number two was broken while the initial supply of graphics cards was arraign from new egg and amazon warehouses among other places the market was no longer perfectly competitive and if we assume rule 1 was maintained which we can directly verify with the jump in second hand graphics card sales from sites like eBay and Craigslist what we're left with is a graphics card market at temporary disequilibrium our perfect model assumed that the market would quickly converge to a single acceptable price for our x5 80s and GTX 1060 s that was somewhere in the low to mid 200s when demand shifted that price increased but the market was still in equilibrium at least until supply was dried up something else to mention this is a shift in demand and not a slide along the original curves since demand increased for all prices when either interest spiked case in point I sold an old rx 470 on eBay for 420 US dollars I purchased it at Best Buy for a hundred and eighty only a few months earlier in rudimentary courses were taught that supply and demand curves are actually straight lines this in fact is not the case they're called curves for a reason at lower quantities supply tends to be elastic mean that small changes in price will yield a greater response in the quantity provided but when demand curves shift as a result of sudden interest spikes required supply is shoved into inelastic territory where small product quantity changes yield enormous price disparities this is because suppliers have difficult times scaling up production conversely demand shifts leftward need only for suppliers to stockpile inventory now I've got in the long run but slower to manifest from a price perspective in the short run as a result we're left with an awkward supply demand plot by this point you might be thinking this is some sort of market shortage right so suppliers like EVGA gigabyte a soos pretty much any graphics card manufacturer or rebrand or out there is short on supply so the reason why we have such high prices is because we don't have enough graphics cards in supply well in a free market with near-perfect competition the answer is a bit convoluted at first yes a market shortage does exist however suppliers will quickly catch on to what's happening they're in charge of inventory after all and once they raise prices to this point the market will once again be in equilibrium that's right what we experienced earlier in 2017 was a market at equilibrium there was no shortage here the more it was perfectly stable where it was and it still kind of is that way it's capitalism at work love it or hate it so in a nutshell the market shortage occurred because prices were initially too low when the demand skyrocketed now this is not the fault of suppliers if they had seen this coming months in advance that could have deployed pricing strategies to kind of alleviate that sharp spike in price right they could have driven down inventory levels slowly or driven them up by increasing or decreasing price accordingly this case I recommend they probably slowly gradually increase graphics card prices to a point where we were at an equilibrium lower than where we were when graphics cards were at their peak price it's just a particular pricing strategy which may have worked in the situation it's kind of hard to even play Captain hindsight here because we aren't sure of all the variables involved one thing is for sure though raising prices in gradual steps early on would have given those with the most immediate demand a reason to purchase them it fears of rising continuously rising prices that is leaving those on the fence at the mercy of time those who see a new graphics card providing the most utility will purchase earlier on and spare themselves from higher prices later on capitalism is like mother nature ruthless and all about survival of the fittest in this case it's those who first saw the demand spike months in advance mainly those who pump and dump online currencies so continuing with our economic analysis here the market was at equilibrium once the prices became stable and around what for 450 bucks for an Rx 485 ATS sometimes even more than that those variances and prices are all function of demand versus supply but the market did have a fair value equilibrium price where a demand and supply curves intersected okay so it was an equilibrium no matter what anyone says there was no shortage market shortage okay the amount of graphics cards in supply had nothing to do with that shortage because prices were allowed to settle at a particularly equilibria now the market shortage definition involves some sort of price ceiling so if the government stepped in and said hey we're not going to allow these suppliers to raise graphics card prices we're going to force them to keep the prices really low so that it happened a mandate state really high supply instead really low and the institution at hand said nope these are gonna stay really low prices we're gonna say around 150 200 bucks for an RX 480 then we would have had a market shortage because then graphics cards would have gone immediately out of supply and there would have been any available for sale that is a market shortage we don't have that you can still buy an rx 480 it's got to pay a lot more for it that's a market at equilibrium believe it or not similar things happen in the wakes of natural disasters when hurricanes threaten US coastlines suppliers ramped up prices to compensate for the impending demand spike they're aware that their inventories will be drained so they seek to obtain the largest profit possible when it happens people see this as distasteful and unethical but they only look at these situations from consumer perspectives it can be costly in time-consuming to restore supply levels to market equilibrium people always blame capitalism evil greedy capitalism for the extremely high prices that we see in natural disasters for example sticking with our hurricane example but the fact of the matter is if a single gasoline supplier let's say it jacked up his prices to $10 a gallon that single gas station wouldn't make a single sale at all unless it was the only gas station in the city which then I would argue the government intervention is required but if the government stepped in and said well we're gonna make prices stay at three bucks a gallon everyone in the city is gonna go to the gas station get gas and then it's gonna dry up you want up any gas available for sale any more after that the same analogy works for graphics cards as well if suppliers hadn't raised prices those consumers who found the most utility in the graphics cards in question would have experienced a market shortage in full force in a self-correcting economy those who demand the product the most will in turn pay the most for it better to have little supply at high price than no supply at all this at least is how it works on paper many will always seek to unethically manipulate an innocent market but this year isn't unethical neither is this the seller isn't forcing anyone to purchase his or her product if consumers desire it enough they will pay the price if consumers do not they will abstain or look elsewhere eventually forcing the asking price down or driving that competitor out of business the only unethical construct involving the free market and higher prices or price gouging as some would call it would be the case of cartels when a bunch of oligopolies decide to team up and all raise prices at the same time which essentially gives the consumer no choice but to purchase the product at a much higher price this is illegal and is actually in the case of the United States federally maintained so if the government sees that a few cellphone companies for example which they're only a few major cell phone companies in this country decided to all raise prices substantially the FTC would step in the Federal Trade Commission and say yeah that's not allowed I'm not sure could be another Bureau or entity in the government but they would all step in and say no this isn't a lot you can't do that and then they would have to force prices back down that is where I would say that's a fair government intervention property I tend to be more just on the free-market side of things in most cases just because if a single graphic supply manufacturer decided to severely raise his prices well I no one's gonna buy from that graphics card supplier and the few people that would would would somehow find utility in that product everyone else would purchase cards that are offered at a much cheaper price that's how the free market works and if that single company charging much more decided that it wasn't worth it to sell it that high of a price you will be forced to lower his prices or go out of business again survival of the fittest there's also some debate as to whether or not government intervention in any sense of the word should be allowed in a truly free market it really depends on where you stand regarding this fiscal policy in essence everyone's an economist and this is really a political issue which I will try to stay out of as much as I can now but I will say that in most cases companies like a Sue's gigabyte and others aren't going to price gouge the individual when they can help it they are merely responding to demand stimuli from outside sources including aetherium mining if you liked this video maybe ya like my shirt be sure to give this one a thumbs up I do appreciate that also click that red subscribe button for more content like this if you want to see more topics like this discussed leave your topic suggestion in the comments below I pretty much get all of my suggestions from you guys stuff that I don't know especially I like to know about read about I'll research it then I'll make a video like this to explain all of you in this particular case I really like learning about the the particular mechanisms as to why prices and supplies behave the way they do in wake of sudden demand spikes really interesting stuff stay tuned for more stuff like this this is science studio thanks for learning with us youso for those who follow me on Twitter you have a bit more insight into my personal life most of you there know that I've already graduated my engineering degree and right now I'm currently working on my masters in Business Administration it's a concentration in finance in particular and in my first semester I actually took a course on micro economic theory and there I learned a bit more about the perfect competition model which is what I want to talk about this video regarding graphics cards in a nutshell perfect competition is defined by five assumptions the first is that market consists of many buyers the second requirement is that the market consists of many sellers three the firm's that sell in the market are free to either enter or exit the market at any time the fourth requirement is that the goods sold by the sellers in the market are assumed to be homogeneous in this case it's a particular good at two graphics cards and we'll assume that the multiple GPU variants and slight clock speed deviations are that are homogeneous and number five buyers and sellers in the market are assumed to have perfect information this means that all resources and pricing strategies are known by all buyers and sellers in the market now obviously the buyers in this market are us we are the consumers we want the graphics cards it doesn't matter what we intend to use those graphics cards for could be gaming mining content creation the purpose of the purchase is irrelevant the fact is we are in the market to purchase graphics cards when interest in ether Speight that's the popular online currency so many are mining nowadays aetherium graphics card demand spiked in particular rx for 80s for 70s 5 80s and 5 70s and GTX 10 60s 10 70s and 10 80s pretty much every mid to high range graphics card on the market all skyrocketed and demand older cards including the r9 390 also flew off the dusty shelves of retired PC gamers so we the buyers created this bubble most of us understand the basic supply demand structure as demand shifts to the right equilibrium price rises but this video will seek to dive much deeper into the matter what essentially happens here what happened with the graphics card market was that the perfect competition model was broken turned upside down from our 5 rules rule number two was broken while the initial supply of graphics cards was arraign from new egg and amazon warehouses among other places the market was no longer perfectly competitive and if we assume rule 1 was maintained which we can directly verify with the jump in second hand graphics card sales from sites like eBay and Craigslist what we're left with is a graphics card market at temporary disequilibrium our perfect model assumed that the market would quickly converge to a single acceptable price for our x5 80s and GTX 1060 s that was somewhere in the low to mid 200s when demand shifted that price increased but the market was still in equilibrium at least until supply was dried up something else to mention this is a shift in demand and not a slide along the original curves since demand increased for all prices when either interest spiked case in point I sold an old rx 470 on eBay for 420 US dollars I purchased it at Best Buy for a hundred and eighty only a few months earlier in rudimentary courses were taught that supply and demand curves are actually straight lines this in fact is not the case they're called curves for a reason at lower quantities supply tends to be elastic mean that small changes in price will yield a greater response in the quantity provided but when demand curves shift as a result of sudden interest spikes required supply is shoved into inelastic territory where small product quantity changes yield enormous price disparities this is because suppliers have difficult times scaling up production conversely demand shifts leftward need only for suppliers to stockpile inventory now I've got in the long run but slower to manifest from a price perspective in the short run as a result we're left with an awkward supply demand plot by this point you might be thinking this is some sort of market shortage right so suppliers like EVGA gigabyte a soos pretty much any graphics card manufacturer or rebrand or out there is short on supply so the reason why we have such high prices is because we don't have enough graphics cards in supply well in a free market with near-perfect competition the answer is a bit convoluted at first yes a market shortage does exist however suppliers will quickly catch on to what's happening they're in charge of inventory after all and once they raise prices to this point the market will once again be in equilibrium that's right what we experienced earlier in 2017 was a market at equilibrium there was no shortage here the more it was perfectly stable where it was and it still kind of is that way it's capitalism at work love it or hate it so in a nutshell the market shortage occurred because prices were initially too low when the demand skyrocketed now this is not the fault of suppliers if they had seen this coming months in advance that could have deployed pricing strategies to kind of alleviate that sharp spike in price right they could have driven down inventory levels slowly or driven them up by increasing or decreasing price accordingly this case I recommend they probably slowly gradually increase graphics card prices to a point where we were at an equilibrium lower than where we were when graphics cards were at their peak price it's just a particular pricing strategy which may have worked in the situation it's kind of hard to even play Captain hindsight here because we aren't sure of all the variables involved one thing is for sure though raising prices in gradual steps early on would have given those with the most immediate demand a reason to purchase them it fears of rising continuously rising prices that is leaving those on the fence at the mercy of time those who see a new graphics card providing the most utility will purchase earlier on and spare themselves from higher prices later on capitalism is like mother nature ruthless and all about survival of the fittest in this case it's those who first saw the demand spike months in advance mainly those who pump and dump online currencies so continuing with our economic analysis here the market was at equilibrium once the prices became stable and around what for 450 bucks for an Rx 485 ATS sometimes even more than that those variances and prices are all function of demand versus supply but the market did have a fair value equilibrium price where a demand and supply curves intersected okay so it was an equilibrium no matter what anyone says there was no shortage market shortage okay the amount of graphics cards in supply had nothing to do with that shortage because prices were allowed to settle at a particularly equilibria now the market shortage definition involves some sort of price ceiling so if the government stepped in and said hey we're not going to allow these suppliers to raise graphics card prices we're going to force them to keep the prices really low so that it happened a mandate state really high supply instead really low and the institution at hand said nope these are gonna stay really low prices we're gonna say around 150 200 bucks for an RX 480 then we would have had a market shortage because then graphics cards would have gone immediately out of supply and there would have been any available for sale that is a market shortage we don't have that you can still buy an rx 480 it's got to pay a lot more for it that's a market at equilibrium believe it or not similar things happen in the wakes of natural disasters when hurricanes threaten US coastlines suppliers ramped up prices to compensate for the impending demand spike they're aware that their inventories will be drained so they seek to obtain the largest profit possible when it happens people see this as distasteful and unethical but they only look at these situations from consumer perspectives it can be costly in time-consuming to restore supply levels to market equilibrium people always blame capitalism evil greedy capitalism for the extremely high prices that we see in natural disasters for example sticking with our hurricane example but the fact of the matter is if a single gasoline supplier let's say it jacked up his prices to $10 a gallon that single gas station wouldn't make a single sale at all unless it was the only gas station in the city which then I would argue the government intervention is required but if the government stepped in and said well we're gonna make prices stay at three bucks a gallon everyone in the city is gonna go to the gas station get gas and then it's gonna dry up you want up any gas available for sale any more after that the same analogy works for graphics cards as well if suppliers hadn't raised prices those consumers who found the most utility in the graphics cards in question would have experienced a market shortage in full force in a self-correcting economy those who demand the product the most will in turn pay the most for it better to have little supply at high price than no supply at all this at least is how it works on paper many will always seek to unethically manipulate an innocent market but this year isn't unethical neither is this the seller isn't forcing anyone to purchase his or her product if consumers desire it enough they will pay the price if consumers do not they will abstain or look elsewhere eventually forcing the asking price down or driving that competitor out of business the only unethical construct involving the free market and higher prices or price gouging as some would call it would be the case of cartels when a bunch of oligopolies decide to team up and all raise prices at the same time which essentially gives the consumer no choice but to purchase the product at a much higher price this is illegal and is actually in the case of the United States federally maintained so if the government sees that a few cellphone companies for example which they're only a few major cell phone companies in this country decided to all raise prices substantially the FTC would step in the Federal Trade Commission and say yeah that's not allowed I'm not sure could be another Bureau or entity in the government but they would all step in and say no this isn't a lot you can't do that and then they would have to force prices back down that is where I would say that's a fair government intervention property I tend to be more just on the free-market side of things in most cases just because if a single graphic supply manufacturer decided to severely raise his prices well I no one's gonna buy from that graphics card supplier and the few people that would would would somehow find utility in that product everyone else would purchase cards that are offered at a much cheaper price that's how the free market works and if that single company charging much more decided that it wasn't worth it to sell it that high of a price you will be forced to lower his prices or go out of business again survival of the fittest there's also some debate as to whether or not government intervention in any sense of the word should be allowed in a truly free market it really depends on where you stand regarding this fiscal policy in essence everyone's an economist and this is really a political issue which I will try to stay out of as much as I can now but I will say that in most cases companies like a Sue's gigabyte and others aren't going to price gouge the individual when they can help it they are merely responding to demand stimuli from outside sources including aetherium mining if you liked this video maybe ya like my shirt be sure to give this one a thumbs up I do appreciate that also click that red subscribe button for more content like this if you want to see more topics like this discussed leave your topic suggestion in the comments below I pretty much get all of my suggestions from you guys stuff that I don't know especially I like to know about read about I'll research it then I'll make a video like this to explain all of you in this particular case I really like learning about the the particular mechanisms as to why prices and supplies behave the way they do in wake of sudden demand spikes really interesting stuff stay tuned for more stuff like this this is science studio thanks for learning with us you\n"