| "Why would there be no net value creation? People's willingness to pay for the service suggests otherwise?" No - 'willingness to pay' is not 'value creation'. The net surpluses to society are the same with a middleman, it's just they've been distributed differently. Assume:
$1 cost to make good
$5 average consume 'highest price point' This means, a bottle sold for $2 to a consumer, means a $3 surplus for the consumer. If there is a middleman who buys for $2 and then sells for $3 to the consumer, the consumer surpluses are reduced. Consumers only get $2 instead of $3 in surplus, because $1 went to the middle man. The 'economic pie' is not increased by basic arbitrage. Now, the caveats: 1) In large liquid markets, price clearing and discovery actually ads some financial value. Even providing liquidity has material value. So in some cases, there is some systematic benefit from arbitrage. There is some 'growing of the pie' and 'more surpluses' for everyone at this point. 2) If it's 'more than arbitrage'. If the 'middleman' was doing shipping, buying in bulk and selling in units, special shipping/packaging or anything else, then there's possibly value creation. Even buying ahead of time, sitting on inventory and smoothing out the supply during demand peaks - this is not so much arbitrage/middleman - this is actually wholesaling. Again, they are creating value. 3) The demand curve has shifted quite a lot over the last little while, but I don't think this changes the arbitrage, it's really just arbitrage. It has a 'caveat' in that this middleman guy may very well have not known the real extent of a supply shock. 4) Even when there can be 'value creation' it doesn't mean 'everyone wins' necessarily, for example, the wholesaler could increase the real value of a product by $X but then sell it for exactly that much more, so the 'net economic pie' is increasing, but they were able to 'grab all of the increase' meaning consumers don't win anything. Most capitalism involves quite a bit of economic surplus for consumers, this is why capitalism works really well and makes almost everyone rich. That you are able to buy a 'dishwasher' for $500, saves you probably $10's of thousands of dollars in labor, i.e. there are massive surpluses to you. Similar for most commodity goods - consumers win big time, even if they don't get direct dollars to put in their bank account as a measure of that value capture. |
Different consumers place different amounts of value on goods. Normally, market prices react to balance this out.
When prices don't move (or are not allowed to) this no longer works. Let's investigate the situation with an example: we have one bottle of sanitizer (produced for 1$) and two people willing to buy. Alice values the product at 5$ and Bob does so at 50$. The retail price is 2$.
Without an adjustment in the price, randomly Alice might snatch up the sanitizer. For a consumer surplus of 3$. If Bob had managed to snatch it, there would be a surplus of 48$.
If a 'price gouging' middle man came in and raised the price, the likelihood of the product going to the consumer who values it more goes up by a lot. 45$ (= 50$ - 5$) of value for the economy are created.
In addition, a common way people deal with these situations is by queuing. What queuing does is to add a time cost to the monetary costs of the purchase. Queues increase until the total cost of the marginal person who could join the queue is at something like a market clearing price.
Unfortunately, that price will mostly be made up of wasteful queuing effort that no-one benefits from.
(PS: I didn't downvote you. I actually upvoted you after I saw your comment was in the negatives. The HN crowd can be pretty knee-jerk with their votes. Any topic around economics (or politics?) is especially fraud with that.)