(Bloomberg Opinion) -- During the weekend the New York Times reported on several professional price gougers who had rounded up Purell hand sanitizer and other disinfectants from local stores to sell at steep markups on the internet. The article was cast as something of a human-interest piece, reflecting how crackdowns on scalping had left these would-be entrepreneurs with excess supply and nowhere to sell. But the public blowback against them was swift and scathing, and at least one has already had his stash seized by a state attorney general.
As Bloomberg Businessweek noted recently, price gouging for essential services is hard to detect, much less prove -- unless, of course, someone brags about it to a major newspaper. But even so, it's worth trying to understand why we find the practice so objectionable.
One might think that steep prices for disinfectant in the middle of an epidemic are just markets at work -- a way of getting scarce goods to the people who value them the most.
I'm sure that's what price gougers tell themselves. And that story is correct for some markets.
But that's not the right way to think about disinfectant at this particular moment. Here's why: willingness to pay for something isn't just a measurement of value -- it also depends on your wealth. Everyone needs disinfectant right now. So if you can pay $87 for a bottle of Purell instead of the usual $2 that probably doesn't mean you're more concerned about the risk of infection than your neighbor; it just means that you have more disposable income.
Thus buying low-priced disinfectant and selling it at steep markups effectively transfers disinfectant supplies from lower-income people to wealthier ones. That's especially true when -- as the Times's article reported -- you're cleaning out the shelves of stores in lower-income neighborhoods, such as Dollar General, and selling on a platform such as Amazon that is disproportionately accessible to those who are better off.
Framed that way, the practice sounds pretty unfair. Moreover, it's suboptimal from a social perspective: Poorer people will be among those hardest-hit by the current pandemic because their health care and housing tend to be less reliable than that of wealthier Americans. And they may have to go outside, even when they would rather stay home -- to keep their jobs, perhaps, or buy food, rather than getting it delivered to their doorstep. That means they'll need disinfectant to protect both themselves and others. By contrast, those with more resources also tend to have jobs than can be done from home -- at least temporarily -- not to mention better baseline health. They'll be much better prepared to lock down if they have to.
On top of that, lower-income workers maintain the backbone infrastructure in industries with high risk of exposure and heavy use by the public, including transit, grocery stores, banks and health care. So even if you’re thinking about yourself foremost, you still want those workers to stay healthy.
But they won't have access to disinfectant if the price rises to a level high enough to match immediate demand with supply.
My recent research with Piotr Dworczak of Northwestern University and Mohammad Akbarpour of Stanford University suggests that in situations such as this it may be best for society to force prices below market-clearing levels in order to make sure everyone has access; that's exactly what laws prohibiting price gouging attempt to do. And we certainly shouldn't want people taking essential goods from lower-income areas and selling them in wealthier ones.
There's a serious consequence to keeping the price low, of course: we end up with rationing, since there's not enough to go around. But that hits everyone -- rich or poor -- more or less equally, because it’s often managed directly by stores placing limits on how much each customer can buy.
We desperately need to increase supply of disinfectant, household staples and other essential goods. But in the meantime, we have to do what we can to get them to the people who need them most, and distribute them as equitably as possible. Price gouging might be part of how markets work in practice, but that’s very far from ideal during an international public-health crisis.
In January, I explained how a similar argument supports the importance of food assistance programs like SNAP.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Scott Duke Kominers is the MBA Class of 1960 Associate Professor of Business Administration at Harvard Business School, and a faculty affiliate of the Harvard Department of Economics. Previously, he was a junior fellow at the Harvard Society of Fellows and the inaugural research scholar at the Becker Friedman Institute for Research in Economics at the University of Chicago.
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