Price Rouging and Business Ethics - Essay Sample

Introduction

Price gouging is the increase of product prices due to increased demand especially during emergencies. Products such as oil, gas and food products may increase in price after their supply is cut down by unexpected natural disasters like hurricanes. The sellers with the limited products take advantage of the demand to increase their prices since the buyers do not have the bargaining power. Most of the buyers are desperate of getting the products and services; therefore, they are forced to buy them at high prices. At the same time, demand may trigger the producers to manufacture more products since they will want to benefit from the high prices hence producing enough for the market and by so doing, the problem of scarcity will be solved. In the case of price gouging, the practice is determined by the market trends in terms of demand and supply. Price gouging is an ethical and acceptable activity that is aimed at ensuring a balance between demand and supply.

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The customers buy one product more than the others, the products demand increases and if the supply does not increase the same way, there will be a shortage of that product and it prices will increase. For instance if there is a power shortage caused by a heavy storm, it is likely that the repair of the transmission system may take a longer time for the responsible authorities to repair them. People in the affected area are likely to buy more candles and batteries to light their houses. As the consumption of these products increases, they will get depleted from the sellers. On the occasion that the storm affected the transport system to the area, then there will be insufficient supply of the product hence causing a shortage. Sellers who may have a few products remaining may increase the prices to take advantage of the situation. Equally, the high prices may hinder customers from purchasing in bulk and this situation will ensure that the products are available to more buyers.

The reason for price gouging can be reduced down in the simplest of terms to basic supply and demand. There are those in favor of price gouging as a legitimate way to plan and profit, while others feel it exploits the consumers in a time of need, catering to the higher end of the socio-economic community. Free market economists suggest that the increase in product prices can be a suitable way of efficiently and quickly distributing scarce resources to those who need them most; hence, solving the problem of shortages. Depending on whether you are the buyer or the seller will ultimately affect the stance you take on the practice of price gouging. Majority vote believes it to be an unscrupulous practice with disregard for human compassion in times of need. The average consumer may be forced to pay exorbitant prices for items that were reasonably priced before the demand for those products increased. "Severe shortages are often followed by dramatic price increases, which all companies in the market are seeing. These prices are being passed along through the entire supply chain, right down to the end user," said Jim Davis, sales VP for LaCie, after monsoon flood waters destroyed several manufacturing companies in Thailand this year.

In US, there are various legislations to regulate price gouging. With cost gouging laws set up, producers are just ready to charge a fee established by statute, and like this have the minimal extra motivator to build supply to antagonistically affected territories. On the off chance that makers can make an additional benefit, these scholars contend, then they will expand the supply. It is asserted that these laws prompt reseller's exchange operations as shoppers with the most reduced open door costs purchase up coveted assets and endeavor to transfer them to open at higher costs.

Various market analysts have restricted the laws against price gouging in the pharmaceutical sector. High prices can be seen as data for use in deciding the best portion of rare assets for which there are various employments. Numerous libertarian financial analysts restrict price gouging enactment and contend that it keeps merchandise from going to people who esteem them the most and not simply to those with the best riches. With cost gouging laws set up, makers are just ready to charge a price established by statute, and in this manner have the minimal extra motivating force to build supply to antagonistically affected regions. If makers can make an additional benefit, these scholars contend, then they will build the supply. It is guaranteed that these laws prompt subsequent selling operations as purchasers with the least open door costs to purchase up fancied assets and endeavor to exchange them to open at higher costs. In support of the contention against price gouging enactment, some declare that a comparable circumstance applies to the individuals who are outside of the calamity zone and willing to go there to offer what is frantically required.

Since most hostile to cost gouging laws depend on the pre-fiasco offering value, an individual who purchases needed supplies at the retail level in an unaffected zone will more effortlessly cross paths with the law than a substantial distributor would. They state that it would be the "little person" who could lose more on a rate premise, notwithstanding the likelihood of robust fines, instead of "huge business." Adversaries of against cost gouging laws likewise guarantee that as far as reasonableness, such laws could also oblige makers to offer products beneath their market-clearing value: the market clearing cost is the sum at which amount provided is equivalent to the amount requested. As per this hypothesis, if merchandise is estimated over the individuals 'market-clearing value then there will be an excess of drugs, and the opposite prompts a lack of products. In this way, supporters of this hypothesis assert that buyers would be not worthy to purchase the essential merchandise which they want in a desperate hour.

Various systems have been set to fathom the piece gouging issue in pharmaceutical businesses. Some of those arrangements incorporate rebates, nonexclusive medications rather than brand-name, esteem based costs, strategy creators and therapeutic services suppliers. Private backup plans can arrange rebates, and discounts are compulsory for State Medicaid programs, directed by the Wellbeing Assets and Administrations Organization. Patients ought to know whether a specialist endorsed brand or brand medication, as this is one of the simplest approaches to save money on recommended drugs. To be sure, generics, on the whole, have an equal adequacy from their image name forms. However, patients can acquire them at a substantially bring down cost. In the event that a doctor said that a patient might supplant a brand name medicate with its non-exclusive substitute, or didn't endorse the medication to be "administered as composed," obtaining a non-particular option would be a savvy choice. An exertion is being made to decide whether the estimation of a medication legitimizes its cost. Such measures incorporate cost-minimization, money saving advantage, cost-adequacy, and cost-utility analysis. They consider the aggregate costs, including doctor's facility stays, rehashed doses, and so forth and, contrasting it with a similar treatment, decides if a medication will limit costs and whether it is more successful in curing the patient. These cost examinations can all be ascertained from the perspective of the doctor's facility, the human services framework, the legislature, and the patient. Moreover, what is best for one gathering may not be best for another as far as cost, making the estimation of medication as far as its cost, some of the time a disturbing thing to quantify.

Economically, price gouging may help to keep the pricing balanced. The increase of a potential to sell for higher profits can cause the distributors to divert more quantity to the area and thereby increase the supply, keeping the cost to the consumer constant. Makers will not want to anger their direct customers by bumping up their price if they can help it. The reason the customers feel jilted is more of a personal nature, not looking at cost and bottom line, there is the desire to come together for the better of the community during hard times. Many communities feel so strongly that laws have been written to prohibit any vendor from raising costs above ten percent during emergencies. The continuing complaints from residents in the monsoon-ravaged town of Phuket caused officials to send out officers to inspect businesses for imbalanced prices. "If we find a shop overcharging, we warn them. If they continue to overcharge, we find them", said Supadcha Boonpalit, chief of the ITO. The average fine currently in the 33 states in the United States that enforce price gouging laws is $1000.00 per offense.

The benefits of price gouging are enough to justify its practice. It's a course of nature but it can also be regulated to avoid overpricing. If the salespeople can keep the products at fairly high prices, then it will bring balance to the market availability of the product. The business also incur high costs to bring such products to the areas where they are needed due to the bad communication and transport systems that may be caused by the effects of the storm.

Side Effects of Price Gouging

Though this practice of price gouging is beneficial to some, it is bad for others. Since price gouging makes even the needy person shell more money for the product, thus it harms the sentiments and pockets of the consumers. Thus, to check the practice of price gouging, the government of different countries has come up with their different price gouging laws. This minimal up charge will not effectively temper demand, and though this policy may sound like a way to help people actually, it leads to shortages and overconsumption. In that case, the government may adopt the hybrid policy, under which it subsidizes certain goods to the retailers, preventing them from raising the prices too much and at the same time allows them to boost the stock of those goods (as now the sellers can purchase it at less price). A government may also do this by removing taxes on these products and thus by making them cheaper to the sellers and giving them an incentive not to increase the price during disasters.

Recently, the war in Gaza and the war on Palestinian banks by Israel have also shown the same after effects. The war had affected the economic infrastructure of the countries involved which also affect the supplies of goods and services in these regions. This leads to price gauging in these areas as people started accumulating goods at cheap rate leaving the needy one with nothing in their hands. Hence, price gauging in these areas enables the needy one to spare some more money to get the required product for their survival in the case of warlike situations. Moreover, since during wartime the supplies are badly hit, hence as per the above diagrammatic representation, their supply is reduced, and prices are increased. because during the war the area gets disconnected with other and trade becomes almost zero in that area, so it became very difficult for the war involving country to fulfill the total demand of goods of its country by itself.

Conclusion

Hence by reviewing the above-discussed topic, we can say in a nutshell that since every coin has two sides so similarly price gauging is good from one angle, but it is bad from the other angle. The war or disaster time did affect the supplies of goods and reduced the supply leading to an increase in the prices of goods which affects the consumers. On the other hand, price gouging before/ after these situations ensures that the people do not hoard goods at their end, and the need...