Many states in the United States of America have placed prohibitions on price alteration that come in effect after lapses of disasters including hurricanes (A. Cavallo, E. Cavallo, & Rigobon, 2014). But what if all the gas suppliers and stations were permitted to openly increase their prices within a reasonable range following the occurrence of a hurricane emergency? Of course, the public and the media would be on the frontline to criticize the change. And what if the gas sellers assumed all factors to be normal and did not gouge prices? What would be the outcome? This essay details on the factors involving pricing of fuel after the occurrence of a hurricane, and critical indicators to be put into consideration before deciding on whether to refrain from hiking fuel prices.
After the occurrence of hurricane Harvey and Irma, the coastal regions were subsequently faced with the looming emergency of devastating hurricanes in the years 2016 and 2017 (Perry, 2012). Also, following the happening of hurricane Harvey that has destroyed Texas’ coastline; several media reports emerged indicating that there would be fuel shortage as a result of short-term shutting of the gulf coast refineries. As expected, citizens panicked, and there was a huge shortage. Most of them opted to buy fuel in large volumes and even kept some in reservoirs hence intensifying the shortage.
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It is expected that after hurricanes, there is an anticipated decrease of vital goods like fuel, while at the same time increasing demand. In a fundamental law of economics, it is expected that when demand surpasses supply, then the cost of goods and services must rise, and in case of an otherwise consequence, then there must be shortages (Michel, 2017). Yet, after the occurrence of hurricanes, the public stakeholders, the media, and the government ignore the law of economics amid shortages and delays. Affected companies are forced to strategize on costing and reflect on the local price gouging clauses, in the process of setting pricing to evade fines and even criminal consequences. State attorneys and prosecutors are vigilantly on the lookout in investigating and arraigning the violators of price-gouging.
Even though there are no specific federal prohibitions on price changes, almost all states have enacted statutes that are aimed at controlling gouging (Tarrant, 2015). Under the arrangement of a normal statute, following the occurrence of an emergency, usually declared by the president or the governor, corporations are restricted from increasing prices for a timeline of usually of one and two months. Violations of such clauses are punishable by imposing of a civil fine, but some states have instilled criminal punishment in conjunction.
A company, or even a multi-national agency, that in operating in an environment that is prone to experience a hurricane should brace itself from a surge in demand that is likely to occur after the disaster (Tarrant, 2015). But are there remedies that can be employed to keep the business afloat? Unfortunately for organizations operating in more than one state, there is a vast disparity in the room for a cost increment violation. For instance, some decrees allow minimal (10-15 percent) cost increases, while most other states do not permit any form of increment (Mohammed, 2017). Similarly, some clauses apply only to the identified commodities such as food, fuel, and medicine, while others employ a broad range of goods such as retail products.
It is possible to assume that if prices are increased with a rational margin, then people would be unable to fill up their fuel reserves and as a result, most would just buy enough to last them until the supply stabilized or perhaps wait for prices to fall. Nonetheless, this basis of consideration is not enough counter-argument on the subject since people are on different socio-economic classes and it is possible that a majority of citizens would not mind spending an extra dollar for a gallon of fuel.
Setting up a fair market value will involve incorporating a range of factors. In reference to IRS Section 1.170A-1(c) (2), a standard market valuation is the pricing in which the commodity would exchange hands between the willing procurer and the willing vendor (Perry, 2012). Neither of the two parties should act under compulsion to either sell or buy, and both should have complete information on the relevant facts. Simply put, a fair price is one that has been unanimously agreed upon by both the seller and the buyer.
Social media is a contributing factor and a reason why organizations are increasingly changing their pricing methods during natural emergencies. Presently, the ramifications from improving prices during emergencies have risen. For instance, Twitter amplified the actions of Delta Air Lines which had lowered the prices of its one-way flights out of Miami during the evacuation (Michel, 2017). Enlightened companies should strive to maintain costing, reduce the price, and even hustle to replenish the supply of crucial commodities to better their clients. After all, it is logic that customers would prefer to deal with an organization that helped them during a moment of crisis than dealing with one that financially capitalized on their shortcomings. It is logical, acceptable, and even understandable to gouge prices for secondary and flashy products such as entertainment and high-end goods. But it is unfathomable to increase prices on necessities following the occurrence of a disaster, most notably, a hurricane. Products pertaining to health, food, shelter, and clothing are considered as primary commodities and it would be unacceptable to hike their selling price.
Potential drawbacks that can be associated with the restricting of prices include quick stock outs, hoarding of necessities, and lowered financial support to replenish the supply. The contemporary events of hurricanes have introduced a new trend in emergency pricing. Instead of hiking the prices, some businesses have organizations prefer to drop the prices of imported goods and services which are on high demand (Michel, 2017). Even though economists perceive it necessary to increase prices during a hurricane, managers have realized that price gouging practice makes the real-life clients view the organization with negativity. As a consequence, long-term revenues can be jeopardized if an entity is believed to be taking advantage of hurricane disasters. For instance, JetBlue cut the prices of its tickets on flights leaving Florida for both non-stop and connecting cities (Michel, 2017). Also, the airway further increased the seat capacities to assist people who were escaping Hurricane Irma. These prices are much lower than what the market dictates, and even far below the airline's usual “advance” charges.
In conclusion, this essay is in support of maintaining normal prices for necessary goods and potentially altering the cost of the non-essential items to ensure availability. An organization’s pricing strategy, and how it is costing impacts the clients during the times of a disaster, are a vital component of its’ reputational brand. Hurricanes and similar emergency incidences present opportunities for brand names to reinforce their corporate social duty, and therefore they should refrain from gouging prices to show that they care for their clients. Similar to the thinking of many policymakers, the cost of goods should be maintained or should be slightly raised in disaster periods. It is an egalitarian approach, whereby the allocation of basic goods is undertaken on the first-come-first-served basis.
References
Cavallo, A., Cavallo, E., & Rigobon, R. (2014). Prices and supply disruptions during natural disasters. Review of Income and Wealth , 60 , S449-S471.
Michel, M. (2017, September 8). Pricing After a Disaster . Retrieved from https://www.contractingbusiness.com/columns/pricing-after-disaster
Mohammed, R. (2017, September 11). Why Businesses Should Lower Prices During Natural Disasters . Retrieved from https://hbr.org/2017/09/why-businesses-should-lower-prices-during-natural-disasters
Perry, M. J. (2012, October 30). More on price gouging: Disasters don't change market forces; Market prices are even more important post-Hurricane Sandy - AEI . Retrieved from http://www.aei.org/publication/more-on-price-gouging-disasters-dont-change-market-forces-market-prices-are-even-more-important-post-hurricane-sandy/
Tarrant, M. S. (2015). The effects of anti-price gouging laws in the wake of a hurricane (Doctoral dissertation, Montana State University-Bozeman, College of Agriculture).
