| Your analysis is too simple. 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.) |
My analysis is not 'too simple' because the 'averaging assumptions' I made are valid in the context of illustrating my point.
Obviously, there are 'supply and demand curves' and that everyone is going to gain different surpluses - but it doesn't matter, and just confuses the issue.
.. which is why I used an 'average consumer' with some arbitrary, made-up price points.
Your example is flawed:
"the likelihood of the product going to the consumer who values it more goes up by a lot."
This is not true, in fact, just the opposite (given the same supply/demand curves), when a middleman 'buys low and sells higher' there is definitely a lower chance that consumers will yield greater surplus on any given transaction, all things being equal.
Now - in any given random transaction, sure there will be greater/less surplus, but that's beside the point.
In fact, when the market clears fully there's a 100% chance that fewer surpluses are going to consumers with a middleman.
There is a special assumption in your example that's not overt which is 'when prices don't move' - I suppose you're hinting at a change in the demand curve, given the 'new calamity' of coronavirus. Whereas people valued Purell 'less before' and 'more now' there's the possibility that a 'middleman' has created 'value for society' by buying up Purell when the did not need it a lot, and selling it when they really did need it a lot more.
The problem with this argument is 'inventory'. There was already quite some inventory of Purell 3 weeks ago. The 'middleman buying it all' would have only decreased usage of Purell during 'nonessential' times very marginally, the overall supply really wouldn't change.
So even with a shifting demand curve, it's still no material value creation by a middleman.
If you were to expand this activity across time - for example, the US stockpiling of Oil reserves etc. - I would say this isn't really arbitrage, and the US is not acting as a 'middleman' - there are very real working capital costs involved in doing this, with measurable strategic advantages.
Finally - your note about 'queuing' is flawed as well:
"that price will mostly be made up of wasteful queuing"
No - it's not 'wasteful queuing' - they are queuing because they get better prices! They are 'playing with time' instead of 'paying with money' which is absolutely a choice many people might take, depending on how they value their time.
Again - pure arbitrage doesn't 'create value' for society, small caveats aside as illustrated in my previous note.