Abstract

If you think shortages—in goods like toilet paper, meat, and masks—came in with the pandemic, think again.

Shortages are periods during which demand exceeds supply, and they’re an inescapable feature of all markets, all the time.

When an investor bids up the price of Apple stock because none is available at current prices, that’s a shortage. When a homeowner receives multiple bids for her home, that’s a shortage. When there are “only three left in stock” on Amazon and four users click “buy,” that, too, is a shortage.

We don’t notice these quotidian shortages because sellers usually respond to them by raising prices. The price of Apple stock jumps, the home sells for more than it listed, and Amazon’s dynamic pricing algorithms regret to inform you that “the prices of some items in your cart have changed.”

But price increases don’t make shortages go away. They just ration access to the shortage good to those who have the greatest willingness—which often means the greatest ability—to pay.

That’s a problem, because ration pricing concentrates wealth in the hands of sellers. We know that because the prices sellers charge before a shortage manifests itself must be calculated to cover costs, otherwise sellers wouldn’t quote those prices. When sellers go on to jack up prices in response to a shortage, they must therefore enjoy a windfall: profits in excess of what they need to be induced to bring their goods to market.

The pervasiveness of shortages, and the ration pricing that comes with them, makes markets fundamentally exploitative. But the only way to induce firms to engage in queue pricing may well be to embrace that ultimate progressive villain: God.

Document Type

Commentary

Publication Date

6-3-2020

Notes/Citation Information

Ramsi A. Woodcock, The Hidden Shortages of the Market Economy, Law and Political Economy Blog (June 3, 2020), at https://lpeproject.org/blog/the-hidden-shortages-of-the-market-economy/.

Share

COinS
 
 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.