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Would tiered pricing keep the store shelves stocked?

Raising, lowering prices is only way retailers can respond to demand

Scott Reeder
Scott Reeder

SPRINGFIELD – Last week, I visited seven Springfield stores trying to buy a gallon of milk before finding the last one at a Walgreen’s.

Over the weekend, I visited my favorite supermarket and it was out of toilet paper, and Monday, I went to the grocery store near my house and couldn’t find an ounce of flour or sugar on the shelves. 

Bleach wipes and hand sanitizer are beginning to feel like items available during a bygone era. 

Beyond a scarcity of hot dog buns on July 4, Americans aren’t accustomed to these types of shortages. 

Our free enterprise system is an extraordinarily efficient way of delivering goods and services. 

The shortages we are experiencing today are the result of panic buying created when customers began hoarding goods because they fear the coronavirus pandemic will disrupt supplies of these goods. 

The best way to combat shortages is to ration goods. 

Some stores I shop at post signs limiting how much milk or cleaning supplies a customer can purchase. Unfortunately, such limits easily can be circumvented by making purchases at several stores or having a friend or family member make a separate purchase on your behalf. 

Of course, there are more formal ways of rationing goods. Stuck away in my desk drawer I have ration stamps for sugar and gas that my grandmother saved from World War II. To hear her tell it, that rationing scheme didn’t work well at all. People hated the government telling them what they could or could not buy, and 60 years after the war, she still was complaining about how people would cheat. 

Of course, the normal way the marketplace “rations” is through price. When demand goes up, prices go up. When demand goes down, prices go down. 

When prices are higher, people purchase less. When prices are lower, people buy more. 

If things were working the way the usually do, that’s exactly what would be happening now. 

Instead, we have lots of empty shelves.

What went wrong?

One barrier to the marketplace regulating itself is government intervention.

In a prepared statement, Attorney General Kwame Raoul said, “Now more than ever, it is crucial to put people before profits, and I will not hesitate to use my office’s authority to take decisive action against those that deliberately raise the prices of items that are crucial to stopping the spread of the coronavirus. I am committed to collaborating with partners in law enforcement and retail to ensure that businesses do not seize upon this crisis to make money.”

Illinois has weak “price-gouging” laws. In fact, only fuel is covered by the state’s price-gouging statute, said Rob Karr, president of the Illinois Retail Merchants Association.

Price increases often are made by wholesalers supplying retailers, but retailers often are blamed by customers for the price jump, Karr added.

An executive order filed this month by Gov. J.B. Pritzker further expanded enforcement of price-gouging to include medical and sanitary items used in the fight against the coronavirus said Tori Joseph, a spokeswoman for the attorney general.

The attorney general also can use his civil powers to fine retailers he thinks have unfairly increased the prices of other items. 

For the time being, his office is calling retailers, whom customers have complained about unfairly raising prices, and asking them to cut prices.  

Raising and lowering prices is one of the only ways stores can respond to demand, though. 

One could reasonably argue that stores should have increased prices to reduce demand. For example, a store could charge $14.75 for an 18-roll-pack of toilet paper, then increase the price to $25 for a second pack and $30 for a third. 

Such a pricing scheme would deter people from hoarding valuable supplies. 

Or, instead of charging $3.50 for a gallon of milk, a store could temporarily raise the price to $5 to deter panic buying.

Would such pricing moves be considered “price-gouging?” Who knows? The definition is ambiguous. Here is one internet definition: “Price-gouging occurs when a seller increases the prices of goods, services or commodities to a level much higher than is considered reasonable or fair. Usually, this event occurs after a demand or supply shock.”

What’s reasonable? What’s fair? There really isn’t a precise definition.  

“’Price-gouging’ implies that they are deliberately hurting people. I think a better term for this would be ‘scarcity pricing.’” said Joe Lehman, president of the Mackinac Center for Public Policy.  “Too often, sellers are presented as the problem, when hoarders may actually be the cause.”

Lehman’s remark rang true to me.

Won’t temporarily increasing prices during a panic create a hardship for some on the fringes? Perhaps. That’s why it’s important to have a safety net of churches, food pantries and government services that can step into the gap.

No rationing scheme is perfect.

But one thing is certain, no one is served when stores have empty shelves.

Scott Reeder is a veteran statehouse journalist and a freelance reporter.

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