Price "gouging"

[Circuits]

This has always kind of irked me... because I believe there's no such thing as price gouging in a free market.

Hypothetical - you've got a million rounds of 9mm you bought at a nickel a round ($50k invested). You've been selling it for $60/1000, and even though your replacement costs for the ammo have risen to a dime a round (this is actually a milder scenario than what's actually happened in the past year), you keep the price static to reflect your "basis cost". Everyone freaks out gobbling it up, you sell out, and wind up with $60,000... $10,000 profit! You're the hero of the gun boards for not being a "price gouger". Nice.

But now you're out of ammo, so you need to restock to stay in business. You've got to pay self-employment and income tax on the $10,000 profit, so your $10,000 gross profit is down to $6,000 or so net profit.

You've got $56,000, which will now only buy you 560k of 9mm... You spend $56,000 restocking your 9mm, but now you're tapped out, have 56% the inventory you had, and are playing a losing game, because people are going to straight up murder or vilify you as a "price gouger" when you up your price to $110/1000 (no extra profit, just covering your increased costs). If replacement inventory prices continue up, and you don't raise prices to reflect replacement costs, you're further screwed with each cycle.

Price has to increase to reflect increased stock replacement costs, and reduced or static supply in the face of increasing demand, regardless of the basis cost of the inventory being sold. If supply is tight, you can't get more inventory to meet demand, so must charge more for what inventory you DO have, and can get in, to maintain a consistent level of cashflow and stay in business.

Any money you make on the way up will level out with your losses if the price of your replacement inventory actually goes down, and/or demand drops sharply. The market won't care that you had to pay a dime a round if 9mm's moving at a nickel a round again, and the market has no memory, so the guy just getting into the game after such a price drop will happily buy at a nickel and sell for $60/1000 again, and your inventory won't be moving unless you price-match... although you were forced to pay $100/1000 just to buy it during the bad times.

[ChunkyMonkey]

N/M misunderstood your post

[cleaner72]

In your scenerio , its completely understandable to raise prises to match what you pay, BUT what most people are complaining about are the people who double or triple the cost of a rifle...like an ak that was 450 bucks to 1200 or more now.....ar's the same...I can get an basic ar15 for 625 shipped....it may take me 3 months to get it, but i can still get it for that price.

[jason303]

Unfotunately, you're an easier target than your suppliers so the blame lands on you.

[SSChameleon]

This reminds me of gas prices right after Katrina. There were some local gas stations who raised their prices to control demand. The theory was it was better to have higher gas prices, but to still have gas available to those who needed it than to be completely sold out of gas.

[scratchy]

Agreed. I did see full shelves of Blazer 9mm for 24.99 a box at GM on Sunday. That's not really gouging since noone is buying........

[GunTroll]

Good scenario. And understood as I am a small business owner. In my opinion "gouging" is defined as buying something for a set cost, marking it up for retail, and then taking part of the hysteria and raising your price to make an "extra" profit greater than the initial expected profit.

[Irish]

In your scenerio , its completely understandable to raise prises to match what you pay, BUT what most people are complaining about are the people who double or triple the cost of a rifle...like an ak that was 450 bucks to 1200 or more now.....ar's the same...I can get an basic ar15 for 625 shipped....it may take me 3 months to get it, but i can still get it for that price.

I feel the same way...
I have a Colt SP-1. When I got it, it's value was around $1,000 (it probably sold originally for $600) I traded for it so there was no cash involved. The guy I got it from had 2 & sold the other one. The other buyer decided he wanted a flattop instead. I offered to buy the rifle from him & he jumped his price to $1400 (this was his "friend" price). His comment was "come on...this is still a good deal." "These things will easily sell for $1600." That is the price gouging that gets me.

I could make a hell of a lot of money selling all my stuff at the new market value (I don't make a living that way) but in my mind, I paid a good price for it, enjoyed it while I could and now want something else to enjoy. If I sell it at new market value, all I am really doing is ripping people off for profit. Unfortunately, in a free market that is acceptable. If people are willing to pay the new market price then that's the price similar items sell for.
We can discuss morals all day long, morals are a moot point in a free economy. Really what it boils down to is how bad do you want something? If you can wait for a "good deal" then please do, it will help lower prices. If you can't wait for a "good deal" then pay what is being asked. That's really the thing about free market, you are free to buy from whomever & free to sell at whatever price you like. Keep in mind that in small communities like this, people remember things. When I need help, or am looking for a "good deal" I would rather be remembered as "the guy who treated you right" or sold something at a fair value, than be remembered as "the guy who made a buck at your expense".

As for retail... Circuits, you have to do what you have to do to stay in business, that is the point of being in business, we get that. MOST of the bitching (as stated above) is for gouging that happens just because they can get away with it. If your prices are reasonable (I have no idea) then offer other things to your customers that make them feel like they were treated right... eg; throw a bone to them, offer free service or a hand made cleaning kit etc... REMEMBER your loyal customers & give them a reason to come back to you. I am a loyal customer to many places. Sometimes they have good prices, sometimes... not so much. I always go back there because they know me, they treat me with respect and I feel like I am appreciated. I can take my money anywhere. I will choose to spend it with you (not personally) because I feel like even though I might save a few bucks over there, if something happens to the product, or I am not happy or I am confused, you will put me at ease and help me feel good about the money I spent.
That's how I roll.

[sniper_tim]

We can discuss morals all day long, morals are a moot point in a free economy.

That is total BS, that is why we have liberals/socialists and big government, to "protect you from the bad immoral corporations". It goes both ways, that is the beauty of the market. If you don't like the way a company does business, then dont spend your money there, if they are immoral and treat people bad, then the market won't support them and they will go out of business. Think about it if the majority of people are good, then the majority of people won't support immoral businesses! However, government forces you to support businesses and bureaucracy, regardless of morals!

If the market is allowed to operate as it should, there wouldn't be price gouging (nobody would pay the high prices, or a competitor would drive the price down), immoral businesses, etc. Think about it, what is driving the current conditions, the threat of government intervention or market control via excise taxes, import taxes, outright bans, import bans, and the list goes on and on of all the wonderful things the politicians dream up to "persuade", "influence", or "control" the market in the name of safety, protectionism, etc.

Econ 101.....

[Eow]

This has always kind of irked me... because I believe there's no such thing as price gouging in a free market.

I agree completely. If there is a shortage of a product and you charge the former rate, people will horde it, buying up everything in sight. Those that charge more will make sure it is still available for those who want to pay. That is the free market at work, if the price is too high, don't buy it--but stop whining about how unfair it is.