Raising Prices in Response to Limited Supply: Price Gouging or Good Business?

Raising Prices in Response to Limited Supply: Price Gouging or Good Business?
Thursday, May 14, 2009

Example 1: Sigma DP2 has been recently released in small quantity with high demand. Amazon and B&H are sold out at $649.99. 47th St. Photo is selling them on Amazon for an 8% markup ($699.99). Thus if you want one badly enough to pay the premium, you can get one now or simply wait for greater availability at the "normal" street price.

Example 2: Nikon AF-S 35mm f/1.8 has been out for a while now, but no one can keep them in stock for more than a few minutes at the normal price of $199.99. No one can keep them in stock for more than a few hours at a 10-20% markup price. If you're really desperate, Tristate Cameras will sell you a gray market model at 25% markup without a warranty or a US model at a full 50% premium ($299.99 plus shipping).

Example 3: Pavilion Electronics has the black Panasonic LX3 in stock (additional 2-3 day processing time) and is selling on Amazon for only $749.99. Measly 75% markup. Just $50 (plus shipping) more than a black D-LUX 4.

The term frequently applied here is "price gouging", which implies mistreatment of customers. Is this poor behavior from the retailer or just a reasonable business practice when dealing with in-demand items? From a business standpoint, it makes sense to maximize profits unless doing so is going to impact customer loyalty. From a consumer standpoint, would you rather see "Not in Stock" everywhere or have the option to buy at a premium?

Posted by Amin Labels: DP2, price gouging

Comments (11)

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Avi Flax · 830 weeks ago

I think it's reasonable.

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Tariq Gibran · 830 weeks ago

I think it's ridiculous as well as unethical. The manufactures should not supply stock to resellers that engage in price gouging as the practice also reflects poorly upon them. I actually think much less of Panasonic and what's going on with the LX3 pricing. That particular situation gives the appearance to the consumer that Panasonic is intentionally holding back supply/production.

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1 reply · active 830 weeks ago

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amin 67p · 830 weeks ago

Someone at Panasonic is probably smiling at seeing the LX3 price higher than the D-LUX 4 price.

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RJH · 830 weeks ago

No one has to buy an LX3 at any price. "Price gouging," if it means anything, refers to raising a price of a necessity, especially if done to exploit an emergency. Raising the price of anti-viral medicine during a swine flu outbreak might be called "gouging." Even adjusting a necessity's price to market conditions is ethical, but to explain why would take more space than is available here.

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2 replies · active 830 weeks ago

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amin 67p · 830 weeks ago

"No one has to buy an LX3 at any price. 'Price gouging,' if it means anything, refers to raising a price of a necessity, especially if done to exploit an emergency.

Totally agree.

"Even adjusting a necessity's price to market conditions is ethical, but to explain why would take more space than is available here."

That I see as unclear. There has been plenty of good discussion of this issue elsewhere, and there is no doubt that some good is accomplished by such adjustments. However, there are also ill effects, and I don't believe that the truth of your statement is easy to establish given adequate space. If you disagree, feel free to make your case, and take all the space you require :).

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RJH · 830 weeks ago

Price "gouging" saves lives: http://mises.org/story/1593

This is a strange location for an economic debate.
RJH (Los Angeles)

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Jeffrey Goggin · 830 weeks ago

Riddle me this: Why is everybody happy when a retailer chooses to sell a product for less because the demand for it is soft and they want to encourage sales, but the same people then take offense when the opposite is true and a retailer decides to sell it for more because supply is scarce? It seems to me if you want to benefit from the former, then you have to suffer with the latter on occasion, as I'm doing with the DP-2 since I've decided it's not worth an extra $50 to me to have it sooner...

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MatthewM 2p · 830 weeks ago

The point is, retailers are trying to make money. They see something that everyone wants and they raise the price. Obviously they aren't selling many of them at that 'premium' otherwise they'd be out of stock, too. I think, like Jeffery said, you have to decide if it's worth the extra premium or not. If it is, then pay the higher price and be done with it.

But think about this: If you pay the higher price for an item, your resale value is still going to be based on the normal price so you will lose a lot more money on the resale of the item should you decide to do so. Also, buying gray market items is fine if it never breaks, needs service or has a recall. But if your item requires manufacturer's attention, you're out of luck and will pay even more money to have it repaired at a facility. Those are all things to consider when buying gray market and higher priced items based on demand. Nintendo did this same thing with the Wii. People were paying THOUSANDS for them on eBay. I got one at Target a month after it was released for the normal price and flipped it a year later for $100 more than I originally paid. It's all about who's willing to pay the price and I think it's fine.

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azoomer · 829 weeks ago

As long as there's no pricing collusion among the vendors, then that should be ok.
Also, because of the internet, seems like we're getting nearer and nearer towards the perfect market model / perfect competition which theoretically would provide us with the best prices possible.

In the end, if the consumers still have a choice on the matter (not to buy, buy, buy from another store), then there's nothing wrong with it at all.

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Mojo_Yugen · 826 weeks ago

I don't have a real problem with it. Suply/demand...blah, blah, blah. That being said a vendor that does sell at over retail probably isn't going to be on my short list when buying other items in the future.
One difference between this and the Wii is that Nintendo wouldn't let the retailers sell it at a markup, they knew consumers would blame Nintendo for the high cost. (yeah, I know, the retailers got around this with bundles.) Camera manufactures either don't have this policy or don't enforce it stringently.