The FTC decided that no “price-gouging” occurred last year when the price of gasoline rose to $3-per-gallon. That’s the right answer, since “price-gouging” is a nonsensical concept rooted in politics rather than economics. But one member of the 5-member commission voted that “price-gouging” occurred.
The one dissenting commissioner, Jon Leibowitz, suggested that the commission had started with an answer and then found a way to justify it. He said the FTC had found “some plausible justifications for the unexpected and dramatic price spikes that bedeviled consumers in the Spring and Summer of 2006.”
“The question you ask, determines the answer you get: whatever theoretical justifications exist don’t exclude the real world threat that there was profiteering at the expense of consumers,” Leibowitz wrote.
Commissioner Leibowitz should be fired immediately for incompetence. Name one business that doesn’t profiteer at the expense of consumers and I’ll name a business that has or will soon fail.
Commissioner Leibowitz seems to believe that there is a correct level of profit that must not be exceeded. Why? If customers don’t like the price, with its assumed profit built in, they may refrain from buying the product. If a sufficient number of customers value their money more than the product (a gallon of gasoline), the price will fall to encourage more sales. Absent that quorum of uninterested customers, their subjective preferences were overruled by other subjective preferences.