Making it Illegal to Raise Prices Twice in a Day

Reading an introductory microeconomics textbook, the reader might think that the processes the result in the prices we pay for goods are the result of some sort of magic process.  Adam Smith called it the "invisible hand." 

In reality, you have people trying to set "the correct" price based upon often consistently flowing information about "market conditions" - i.e. costs and benefits in the marketplace.  New information comes in, then prices will change to reflect the change in market conditions.   If it's easy to change the prices* and new information keeps coming in throughout the day, then we'd expect prices to adjust rather quickly.

Then there's the inevitable error with trying to guess what the information means and what your competition is thinking.  Sometimes you set too high.  Sometimes you set too low.  In a competitive market, if you set your price too high, it's not the government you should worry about.  It's your competition that you should fear. 

But Kip notes that some New York City politicians don't think that's good enough.  The NYC council is going to make it a crime for making a mistake on the high side of setting gas prices:

The City Council voted yesterday, 43-6, to override Mayor Bloomberg's veto of a bill that would make it illegal for gas stations to raise prices more than once a day.

The logic of this is plainly silly.  A station could raise its gas prices once in a day by 15 cents and stay clear of the law, but one that raises its prices twice by one cent each time would be a price gouger.

Over the summer months, council officials said they saw evidence of price gouging(**-Phil), with some stations raising prices arbitrarily, sometimes more than once a day.

The NYC council cannot change the fact that outside forces dictate gasoline prices and that these can change multiple times in a day.  These forces sometimes work to raise gas prices and sometimes they work to push prices down (if market conditions are such that not lowering prices would generate a shortage).  If it's a crime to increase prices a second time, what will gas station managers do when it comes time to raise prices the first time?   

*Regarding the ease of changing prices:  back in the day when I worked at the drug store, one of our jobs was to do price changes.  Back in the early 1990's, when we still used pricing guns and price stickers on everything, we would get a list of products and the new prices to which they should be changed.  We had to take the old stickers off (a chore involving a cigarette lighter and a single-edge razor blade) and reprice each unit - which involved taking each unit off the shelf and putting it back up.  It was a pain in the behind - kinda like walking barefoot in the snow uphill to school both ways.  But we really had to do it. 

But as we moved to using scanners, prices could be changed much more readily.  Someone would change the price of a good in the system, a new shelf sticker with the new price would be printed, and someone would post the new sticker.  Job done for that good.  I would not be surprised if there were numerous goods that have their prices increased more than once in a day.

As technology improves, it would not surprise me to see shelving where the prices of goods and other information is displayed electronically.  When the price of the good is changed in the system, the display price is also changed.

**I wonder if council members are happy when the prices of stocks they own rise more than once a day.  Perhaps they should check themselves for evidence of price gouging.

Comments

[Brian Ferguson]

Has someone used this evidence to test the menu cost versions of the New Keynesian macro model?

[KipEsquire]

"As technology improves, it would not surprise me to see shelving where the prices of goods and other information is displayed electronically."

One of my best worst stock ideas (i.e., I lost my entire investment) was a company called Telepanel Systems, which offers RFID/LCD shelf displays in supermarkets and other retail venues. It satisfies state "item-pricing laws" and prevented shelf-sticker-scanner discrepancies.

The company is still in business, but only after a pre-packaged bankruptcy that left initial equity investors with bupkes. Oh well...

[Judy Waggoner]

Dear Sir,
I was told that anyone was caught price gouging gasoline, you would deal with them.
Well this day Fri.12-08 waiting for the hurricane to hit Texas, one of the service stations in our little town raised their gas prices TWICE IN ONE DAY .When they open, price was $3.74 then 10:00 am it was $3.77 them 1:00 pm it went to $3.98! Who knows what it will be when they close tonight!
This was Gates in Elkton, KY.

Would you please check into this matter..

Thank you..

Judy Waggoner
123Elaine Ct.
Elkton, Ky. 42220
270 265-5402