0:04

this is the caterer daily podcast for

0:06

friday may tenth two thousand twenty four

0:09

i'm kela brown states varied widely and

0:11

how they handled wildly changing prices during

0:13

the pandemic so what do

0:15

those differences tell us about the effects of

0:17

policies meant to crack down on so-called price

0:20

gouging gavin roberts is a

0:22

professor of economics at weber state university

0:24

we spoke in dallas in march and

0:33

and and

0:36

careful listeners of the caterer daily podcast

0:39

will know we talk occasionally about price

0:41

gouging especially during the pandemic and its

0:43

sort of pernicious effects on people's preferences

0:47

or willingness to buy more

0:49

than they otherwise might uh

0:52

you know anybody who studies economics knows

0:54

that uh when their supply

0:56

and demand are way out of whack

0:59

and there is uncertainty and

1:01

prices are allowed to rise and

1:03

fall people buy less of essential

1:06

goods than they might otherwise purchase

1:09

we saw people uh during

1:11

the early days of the pandemic

1:13

buying toilet paper in very large

1:15

quantities and you know

1:18

if prices were allowed to rise and fall in

1:20

a lot of those places maybe

1:22

they wouldn't have hoarded and of course they

1:24

were hoarding unnecessarily but in the short time

1:26

frame it was a it was a difficult

1:28

moment people didn't really know what what

1:30

to do but we know that

1:33

price gouging has some pretty pernicious

1:35

effects on people and

1:38

when you need essential goods you really need them

1:41

so the pandemic also offers economists

1:43

an opportunity we don't like to look necessarily

1:45

at silver linings of terrible events but to

1:47

the extent that there was a silver lining

1:49

economists got a lot of data because

1:52

a lot of states did widely

1:54

varying things with respect to

1:56

trying to control prices during

1:58

this very certain moment. So

2:01

not to call you morbid, but it is

2:05

something that economists say, oh boy, data.

2:08

Absolutely. It felt a little bit morbid at

2:10

the time, honestly, but it was very exciting

2:12

to see that data. I guess what questions

2:14

were you trying to get at in

2:16

looking at the variance among

2:19

states with regard to their

2:21

price gouging policies? So

2:23

essentially, I mean, you learn

2:26

about the effects of price ceilings

2:28

very early on if you pursue

2:30

economics. And most

2:33

economists believe that price regulation

2:36

has capricious effects that you

2:39

describe, but historically it's

2:41

been pretty difficult to empirically test

2:43

that idea because a shortage occurs

2:45

when transactions that we would expect

2:47

to be made are not being

2:49

made. And that's just hard to

2:51

see. So that's one reason historically

2:53

it's been hard to empirically test

2:55

that theory. Another reason is that

2:58

it's relatively rare for

3:02

you to be able to get

3:04

the policy variation over price gouging

3:06

because the price gouging regulation historically

3:08

has always occurred in response

3:10

to an emergency. And

3:13

it's historically rare for

3:15

that emergency situation to hit multiple

3:17

states at the same time and

3:19

those states have varying policies over

3:21

price gouging regulation. So one thing

3:23

that this morbid pandemic did is

3:25

it infected every state in the

3:27

United States and

3:30

there was variation in price gouging

3:32

policy across those states. So one

3:35

monoconsal event

3:38

and then differing

3:40

responses to that event gives you

3:43

a wealth of information

3:45

that you can start

3:47

to try to draw some conclusions about. Yeah,

3:50

and it's like the nature of the pandemic

3:52

is like our identification strategy because it's like,

3:54

no, there's like you are all getting selected

3:56

in to this pandemic. Now, maybe we did

3:58

have to think about different responses in

4:00

some of our work that are not

4:03

necessarily price gouging responses, but might impact

4:05

behavior in ways that looks

4:07

like it's price gouging. So we do have

4:09

to be very careful about all of the

4:11

other policies that are happening at this time.

4:14

So one of the things that you looked at that

4:16

I think is really interesting is states

4:19

that have had experience

4:21

in this area in particular

4:24

before. And one of the

4:26

states you mentioned before we started recording is

4:28

Louisiana, which has not

4:31

that long ago some pretty

4:33

significant experience with some pretty

4:35

devastating events. And

4:38

so the memories may be a little bit

4:40

fresh and maybe the incentive

4:42

to behave this way or that way

4:44

might be a little different. That's absolutely

4:47

right because basically our hypothesis,

4:51

and so first I'll talk a

4:53

little bit about the data. Louisiana

4:55

was one of the states that

4:57

I think the first state to

4:59

ever have price gouging regulation, and

5:01

that's related to the nature of

5:03

Louisiana. Louisiana experiences above average numbers

5:05

of emergency situations, namely hurricanes. This

5:08

led to sort of

5:10

political demand for price gouging regulation

5:12

because what you see there is hotel

5:15

room prices, for example, go way

5:17

up. Gasoline prices go way up. So

5:19

you start to observe these types

5:21

of regulations there. And

5:23

so and then many other states implemented

5:26

a similar type of price gouging regulation

5:28

over time. The way those things work

5:31

is that when a governor declares an

5:33

emergency, the price gouging regulation is sort

5:35

of clicked. Now,

5:38

what's really nice from an economist point

5:40

of view, not necessarily from a humanity

5:43

thriving point of view, but from an economist point of

5:45

view is some states, most

5:48

states with price gouging

5:50

regulation are like that. They already

5:52

had price gouging regulation before the

5:54

pandemic. And so

5:56

the people that live in those states are

5:58

more likely to have had. had experience

6:00

with the impact of that

6:02

regulation. However, a small

6:05

number of states introduced price gouging

6:07

regulation for the very first time

6:09

during the pandemic. So we thought,

6:11

oh, whoa, maybe those people

6:13

who have had less opportunities to learn

6:15

about the impacts of this regulation possibly

6:19

are going to respond differently from those

6:21

people who have more experience with the

6:23

regulation. And we find that indeed. So

6:26

not only do people with previous experience

6:29

hoard more based on how we test

6:31

what hoarding is, which is essentially Google

6:33

searches, shopping searches, for

6:36

things like hand sanitizer and toilet paper. So

6:38

not only do they hoard more, they

6:41

also start hoarding earlier. So

6:43

they actually will think if they

6:45

believe that the governor

6:48

is going to declare an emergency, then

6:50

they might actually go and start buying

6:52

their hand sanitizer and toilet paper before

6:54

the declaration of the emergency, understanding

6:56

the implications of price gouging regulation. Or

6:58

at least that's our theory. And we

7:00

do see that in the data, that

7:03

we indeed had more statistically

7:06

and economically, relevantly more

7:08

searches in those places. And

7:11

I think that has much

7:13

broader implications because what that

7:15

says more generally is that people learn

7:17

about the effects of microeconomic policies like

7:20

price regulations and then change their behavior.

7:22

And that actually makes things very complicated

7:24

from the regulator's perspective. Is

7:26

that the regulator can make

7:29

a declaration, they can impose a

7:31

policy, and they can have

7:33

an expectation about how people will

7:35

behave. But of course, the

7:38

whole of economics and psychology and

7:40

other social sciences is that people

7:43

respond to these

7:46

impositions in ways that maybe

7:48

you wouldn't predict. Absolutely.

7:51

And it's almost like the Lucas critique

7:53

of microeconomics. Like you need

7:55

to think about the behavioral reaction in

7:57

these situations. And then broadly, it's unintended

7:59

consequences. is a really fundamental thing that we

8:01

think about. Because another paper we wrote,

8:04

we had to think of ways to

8:06

measure the existence of a shortage from

8:08

price-guaging regulation. One way was

8:11

looking at Google Trends. But

8:13

another way, my co-author discovered a

8:15

cell phone data set that many

8:18

health policy people were

8:20

looking at, because they wanted to understand

8:22

how the pandemic had changed, where

8:25

people were going, how were people congregating

8:27

in different places. And we noticed this

8:29

literature was happening. And we thought, hey,

8:32

one way to search for Hannah sanitizer and toilet

8:34

paper is to go online and see if Amazon

8:37

has it or something. Which I think a lot

8:39

of people did. A lot of people did that.

8:41

And that is another interesting thing that maybe we

8:43

should chat about in a second. But a lot

8:45

of people went store to store. In fact, you

8:47

can find pictures of people lined up at stores

8:50

holding their shopping carts during the pandemic. And

8:54

that is an unintended consequence,

8:56

possibly, of price-guaging regulation. So we

8:58

actually show in that paper that

9:00

you have more social context in

9:03

specifically grocery stores and pharmacies

9:06

relative to states without those regulations. And

9:08

our expectation is that because people are

9:10

searching in those stores for these goods.

9:13

Now, people might say, oh, behavior is

9:15

changing for all types of reasons. How can

9:17

you attribute that to price-guaging? Well, because we

9:19

also did the same test at locations where

9:22

we would not expect people to search for

9:24

goods that are in shortage and found no

9:26

effects in those places. My colleague,

9:28

Ryan Bourne, at the Cato Institute has

9:30

a forthcoming book, The War on Prices.

9:33

And price-guaging, I think, plays a role

9:35

there. But he likes to tell a

9:37

story of two pharmacies across

9:40

the street from one another. One is

9:42

selling hand sanitizer for $4. The

9:45

other one's selling hand sanitizer for $15. And

9:49

a guy goes into the store selling it for $4. The

9:51

guy says, we're out. Goes across

9:53

the street to the place

9:56

selling hand sanitizer for more And

9:58

says, hey. This. Guy

10:01

across the street charging. "A lot

10:03

less than you are for hand sanitizer in

10:05

the guy run into pharmacy", says Well, yeah,

10:07

when we run out will charge that price.

10:10

And that I really cause I brew. We talked

10:13

about Amazon a second ago and I think that

10:15

that. Is. What users

10:17

pointed out and firms are also

10:19

having reactions to the situation. And.

10:22

There's all sorts of interesting claims about

10:24

the behavior of firms to kind of

10:26

support to pray you know you should

10:28

have price and gouging regulations. Are these

10:30

greedy people that are going to take

10:32

advantage of all the string pandemic? And

10:34

I'm and that a lot of people

10:36

have that feeling, including people that work

10:39

at Amazon. So Amazon a private company.

10:41

Had a price gouging regulation on. It's. Marketplace.

10:44

Essentially. Like. As they decided

10:46

and that sort of insert think as it's

10:48

now thinking about will and my belief is

10:50

that that would probably lead to a great

10:52

deal of and efficiency. By. Having

10:55

that regulation as you would look maybe we

10:57

remember if you wouldn't try to let for

10:59

masks and sanitizer toilet paper on amazon. during

11:01

that time it was not there. We.

11:04

Are out. A bit of the price for

11:06

tonight's right. It was a four dollar toilet

11:08

paper but it was not there and you

11:10

can see it. he just couldn't clicker because

11:12

everybody had already done that and which god

11:15

and that's that one was very interesting to

11:17

me and grocery stores. And. As soon

11:19

as some literature on grocery stores. not

11:21

during the pandemic, but in general. If you

11:23

think about the business model of a

11:25

grocery store. Their. Model is

11:27

you coming to that store for the rest of

11:29

your life? That is the story that I go

11:31

to for my milk. They will take a loss

11:33

on one going to on one back to keep

11:35

you coming. But that and cells isn't

11:38

your thing, right? Because it's like it's less is very.

11:40

Desire. To keep you coming,

11:42

your entire life is inefficient on

11:44

that day in his sentence, and

11:46

so all things like that is

11:48

icing from behavior as a piece

11:51

of this that we probably don't

11:53

understand much yet and is very

11:55

interesting. Another claim was that. So.

11:57

You mentioned the demand side people, well tamp

11:59

and there. Man, if you like to

12:01

prices some work in that situation, Prices

12:03

will go up. I'll figure out how

12:06

to substitute. I'll figure something out. The

12:08

other side of the equation is that

12:10

if toilet paper prices spike, we should

12:12

expect toilet paper producers. To

12:15

push up capacity they should try. And

12:17

Arizona? No, no, no twelve. you can

12:19

just increase toilet paper production. And the

12:21

sword. I'm an attack. And

12:24

so as they, even if the price is fifty dollars,

12:26

are all. Those. Greedy people who

12:28

we have to regulate. we have to tell

12:30

them not to increase the price of. That's

12:33

how greedy their. That's. The class.

12:35

and but they're not gonna try to

12:37

sell more toilet paper when they're making

12:39

massive profits per roll of toilet paper.

12:41

That's hard to believe both of those

12:44

can be true at the same time.

12:46

Of course, the theoretical a shortage happens

12:48

regardless of how big the supply responses

12:50

because as you pointed out, demand side

12:52

some things are happening, but we should

12:55

expect supply side things happening to and

12:57

the degree to which economists that I

12:59

talked to not like, no, no, you

13:01

can't he dances, ramp up production. a

13:03

short. Time so you really can't

13:06

have that side of the equation. But

13:08

it's really hard to believe that that's

13:10

true if we just sort of watch

13:12

what from the day. yeah, if if

13:14

the supply side response is if I

13:16

looked like. A

13:18

greedy, rapacious. Capitalist.

13:21

In this moment it will cost me

13:23

down the road. And.

13:25

I think intuitively most people who who

13:27

say all while the price of this

13:30

has gone way up on acceptable. Goodbye.

13:33

To. That's not. At least. Not.

13:36

Reading through the data and reading

13:38

too little to a subject that's

13:40

totally understandable. Frankly, yeah absolutely

13:43

it is an understandable because that is

13:45

this a reaction i mean the word

13:47

gouging comes is born of that seal

13:49

and right like why is this how

13:51

to price gouging like i'm going to

13:53

gouge you with a price and that

13:55

i mean even the words because i

13:57

like to talk about my a macro

14:00

Okay, now that you know some microeconomics,

14:02

tell me the economic definition of price

14:04

gouging. Like what does that mean in

14:06

this model? And

14:08

oftentimes they get to the right answer. It appears

14:11

not to have any meaning in this model. And

14:14

that's kind of true. So what

14:16

people even mean when they say price

14:18

gouging is kind of hard to know.

14:20

It's pornography. Yeah. I know

14:22

it when I see it. Yeah, exactly. That's exactly

14:25

right. Gavin

14:29

Roberts is a professor of economics at Weber

14:31

State University. We spoke in Dallas in March.

14:34

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14:36

Podcast anywhere you like. And

14:38

thank you for listening.