When is it Unethical to Jack Up Prices?

Epistemic Status: not an economist, probably missing something important. If you don’t read the whole way through, just assume that I hate the poor and I’m satan himself.

The coronavirus, still in its infancy, has already managed to bring up uncomfortable ethical questions across a range of domains. When we run out of hospital beds, which patients do we decide to treat? Should we all be wearing face masks, even if the benefit to an individual wearing a mask is small?

But the question that’s striking me the most relates to prices. Yesterday when I made a trip to the supermarket I felt like I was in a movie: where once toilet paper was the only item curiously absent from shelves, now there were frightening stretches of empty shelf where you would usually find bread, lettuce, cereal (not milo cereal for some reason), long-life milk, tortillas (this is when I started freaking out), brown onions, you name it. Just gone.

I made a trip to the nearby green-grocer to see if they still had brown onions and though they had did, in ample supply, other varieties of produce had been similarly raided. I asked the person behind the till ‘Have you guys jacked up prices yet, given all the panic buying?’, to which she responded ‘umm, I don’t think so’.

I reasoned, ‘Might be a good time for it. We can’t have every business suffering financially right now’.

It was kind of tongue-in-cheek, but as the words left my mouth I realised how unashamedly capitalist it sounded. The simulated anti-capitalist persona in my head reproached me: ‘Wow. No better time to hurt the poor than in the advent of a national pandemic?! Fuck you!’ The purpose of that persona is to criticise my beliefs and intuitions early so that I can correct and refine them before inviting the same criticism from the real world, so I figured it was worth fleshing out my thoughts in the form of a blog post.

About a week ago on the radio the host was taking calls from people about any grievances they had with institutions, and a woman called up who had a bone to pick with Coles. She complained that Coles had marked up pasta from $1.60 a kilo to $1.80 (if I recall correctly) in light of increased demand, and that it’s going to hurt people like pensioners who can’t spare much coin. The host responded that it’s far preferable for a pensioner to spend extra for pasta than to get no pasta at all because other people exploited its low cost. The woman didn’t really want to entertain with that perspective, deciding instead to just repeat ‘but they can’t afford it’.

The host then got in contact with somebody from the ACCC (Australian Competition and Consumer Commission) to talk through when increasing prices is wrong, and the response was that there really aren’t many cases where jacking up prices is illegal. Looking here, most pricing laws relate to anticompetitive underpricing, or price fixing. There’s nothing anticompetitive about jacking up prices independently of other businesses, because if you go overboard, people can just go to your competitor. That’s the magic of non-monopolised markets.

But is there something predatory about exploiting people’s panic and doubling bread prices? Let’s think about what actually happens as a result: some people who rocked up with the intention of buying a heap of bread now realise it’s actually going to be quite expensive to do so, and decide to either get one loaf, or go somewhere else that sells bread for cheaper. Then, other people who aren’t in the market to panic buy actually have bread to choose from and can buy the loaf they want, assuming they themselves are happy to foot the bill. The downside is that there will be a pensioner out there who is so strapped for cash that they can’t spend the extra five bucks and end up going without bread. Do we just say Tough Luck? It’s hard to take in all the factors objectively when that poor pensioner sticks out as being particularly mistreated. It’s bad enough that they’re risking their life just sharing space with other humans! But if it’s stories and not numbers that have the most salience to us, the story of not only the pensioner but every other person at the supermarket missing out on bread because it’s all gone hits a little harder in the region of existential despair.

Let’s say the overall consequences of increasing prices are ethically desirable (compared to the alternative). Should we still judge the supermarket for making the call? It’s not like they’re jacking up prices from the good of their heart: they’re a business looking to make a profit. How should we judge their intentions?

First, an aside: whether they should objectively be judged, they will be judged for price hikes, and in a time of crisis where people are feeling sensitive to injustice, for Coles to increase prices while their main competitor Woolies holds their ground would be social suicide. Not only will A Current Affair be on the case faster than you can say ‘2 out of 10 stars on IMDB’, all the customers will go elsewhere to get their food.

As for how objectively worthy of criticism they are, I’m on the fence. If you believe me when I say that a price increase is a good thing overall, I think we should be happy that an Australian business is making money in a time when the rest of the economy is suffering. On the other hand, if everybody is spending all their money on food, there’s even less money left to circulate the rest of the economy. There are also other ways to spare some bread for the pensioners: Coles currently has signs up mandating per-person item limits for soap, toilet paper, and some other goods in high demand. I think this is a reasonable policy, but I’m still still a little skeptical of the power of per-person limits after seeing how that went down in communism. What happens when flour, pasta, and rice end up with per-person limits but a customer has celiac so flour and pasta are worthless to them and they need more rice than other people? Tough Luck. What about all the other essential items that aren’t on the list and get snatched up due to low prices? Tough Luck. If demand was reflected in prices rather than item limits, that customer could express their increased demand for rice by simply paying the premium for it.

From the CEO of Coles

In fact, and I’m ashamed to admit this, I ‘panic-bought’ burrito spice mix yesterday. I’ve been going through a homemade burrito phase for about six months now and I go through the ingredients pretty quick. Given I find myself getting the spice mix at least once a week anyway, I figured to just get it in bulk then and there. After all, the price was the same! I thought ‘If somebody else wants to make burritos, they can suck it up and use the taco spice mix instead’ (which I’ve had to do myself once or twice). Yes I am ashamed. Yes I am part of the problem. But take it from me, if the price was three times as high I wouldn’t have made that call and somebody else would be enjoying some home made burritos right now.

You might say ‘but jacking prices benefits the rich and exploits the poor’! That is absolutely true. But any non-zero price is going to disproportionately hurt the poor. I think businesses should worry about honestly setting prices in light of supply and demand, and the government should worry about wealth inequality through redistribution. And what better way to finance that redistribution than a 30% corporate tax rate?! A society where prices are allowed to rise and fall with the tide of supply and demand is better than a society where prices are irrationally low and nobody gets what they want.

But as the name of this blog suggests, I could be wrong and I’m open to alternative ideas. Anything is easier than talking this through with my imaginary inner anti-capitalist.

Less and less certain of my opinions with every passing day

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