This article talks of rice gouging as a pricing strategy followed by US companies vis-a-vis Australian consumers. We start with the concept of the strategy and the conditions required for its effectiveness. Next it is applied on the current situation that is the focus of the article. Lastly we try and assess the benefits and costs of this strategy.
Price gouging is a form of price discrimination, where the producer/seller is able to discriminate between different consumers on the basis of his selling power or some feature of the consumer itself. Price gouging is negative in its implication as it involves charging higher prices from consumers in times of emergency, as the consumer has no choice. It is even treated as illegal in some economies. For example, if there is a hurricane and plywood manufacturers charge a higher price from consumers wishing to rebuild their homes, it is price gouging. This is because there is no change in the good provided or the cost of manufacturing that good. Producers are simply using the consumers’ emergency demand for plywood to boost profits for themselves. Another example is the rise in essential items prices when there is a curfew in riot affected areas. For the producer this makes sense as demand becomes inelastic in times of emergencies and he can charge a higher price and increase his profits.
“Everyone engaged in a business who…engages in a policy of selling products in any area of the country at prices lower than those exacted by him elsewhere in the country, having the effect or tendency of substantially lessening competition or eliminating a competitor in that part of the country or designed to have that effect….is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years.”Section 50(1)(b),Canadian Competition Act
A necessary condition for price gouging to succeed is that the market is