Business Question

Give two examples of unethical conduct involving inventory management and the ethical principle each one violates.

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PriceGouging.pdf

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  The Ethics of Price Gouging
Author(s): Matt Zwolinski
Source: Business Ethics Quarterly , Jul., 2008, Vol. 18, No. 3 (Jul., 2008), pp. 347-378
Published by: Cambridge University Press
Stable URL: https://www.jstor.org/stable/27673240
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THE ETHICS OF PRICE GOUGING
Matt Zwolinski
Abstract: Price gouging occurs when, in the wake of an emergency, sellers
of a certain necessary goods sharply raise their prices beyond the level
needed to cover increased costs. Most people think that price gouging
is immoral, and most states have laws rendering the practice a civil or
criminal offense. The purpose of this paper is to explore some of the
philosophic issues surrounding price gouging, and to argue that the
common moral condemnation of it is largely mistaken. I will make this
argument in three steps, by rebutting three widely held beliefs about
the ethics of price gouging: 1 ) that laws prohibiting price gouging are
morally justified, 2) that price gouging is morally impermissible be
havior, even if it ought not be illegal, and 3) that price gouging reflects
poorly on the moral character of those who engage in it, even if the act
itself is not morally impermissible.
1. Introduction
the Raleigh-Durham
area without
power.struck
Without anyNorth
way of refrigerating
food,leaving over a million people in
In 1996,
Hurricane
Fran
Carolina,
infant formula, or insulin, and without any idea of when power would be restored,
people were desperate for ice, but existing supplies quickly sold out. Four young
men from Goldsboro, which was not significantly affected by the storm, rented
refrigerated trucks, bought 500 bags of ice for $1.70 per bag, and drove to Raleigh.
The price they charged for the ice was $12 per bag?more than seven times what
they paid for it.1
This kind of behavior is often referred to as “price gouging.” Many states, North
Carolina included, prohibit it by law. And even when it is not legally prohibited, it
is generally thought to be exploitative and immoral.2 The purpose of this paper is
to explore the philosophic issues surrounding price gouging, and to argue that the
common moral condemnation of it is largely mistaken. I will make this argument in
three steps, by rebutting three widely held beliefs about the ethics of price gouging:
1) that laws prohibiting price gouging are morally justified, 2) that price gouging
is morally impermissible behavior, even if it ought not be illegal, and 3) that price
gouging reflects poorly on the moral character of those who engage in it, even if
the act itself is not morally impermissible. The core of my argument will be that
? 2008. Business Ethics Quarterly, Volume 18, Issue 3. ISSN 1052-150X. pp. 347-378
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348
Business Ethics Quarterly
standard cases of price gouging provide great benefit to those in desperate need,
that they tend to lack the morally objectionable features often ascribed to them such
as coercion and exploitation, and that attempts to prohibit the practice will harm
individuals who are already vulnerable and can least afford to bear further harm.
The argument of this paper is an exercise in non-ideal theory.3 Much of what
bothers us about price gouging, I suspect, is the fact that it takes place in a social
context where the background political and economic institutions are less than
fully just. Many people object to the inequality which pervades the distribution of
wealth and social services in the United States, and worry that price gouging either
exploits or exacerbates that inequality. The real problem, such people might say, is
not price gouging itself but the more fundamental issue of an unjust basic structure.
I do not wish to deny that questions about the basic structure are important. But
they cannot be the only questions that are important. If our basic structure is unjust,
then we still need to decide how individuals should act, and how particular policies
should be formulated, in the context of our unjust society. Part of what we should
be doing, to be sure, is trying to make the basic structure more just. But assuming
that this goal will not be achieved immediately, we still need to decide what to do
about price gouging here and now.
Before we can proceed to the normative arguments about price gouging, how
ever, we will need to arrive at a more precise understanding of the concept than
that which we are given by common usage. Specifically, we will want an analysis
which makes clear how cases of price gouging differ from the kind of ordinary
market price hikes which are not even prima facie morally objectionable. Section
two will undertake this analysis. Section three will begin the normative argument
by attempting to show that laws prohibiting price gouging are morally unjustified
and ought to be repealed. Section four will go further and argue that most, though
not all, cases of price gouging are at least morally permissible, if not morally praise
worthy. An implication of this position is that individuals have reason to reject calls
to voluntarily refrain from price gouging where it is not prohibited by law. Finally,
section five will argue that price gouging does not necessarily reflect poorly on the
character of those who engage in it. Some people who engage in price gouging no
doubt will do it from bad motives or disreputable characters, but the mere fact that
they engage in price gouging is not evidence for this conclusion.
2. The Concept of Price Gouging
A fruitful place to begin a conceptual analysis of price gouging is with the lan
guage of the statutes which prohibit it. At present, there is no Federal anti-gouging
legislation, though one bill specifically focused on gasoline has passed the House
and is currently pending in the Senate.4 Approximately thirty-four states, however,
have laws against price gouging, a survey of which reveals that gouging is gener
ally defined in terms of three elements. See Appendix A for a detailed overview
of these laws.
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The Ethics of Price Gouging
349
1 ) Period of Emergency: Almost all anti-gouging laws specify that they apply
only to actions taken during times of disaster or emergency.5
2) Necessary Items: Most laws further specify that their restrictions apply only
to certain classes of items, generally those which are necessary for survival
or for coping with serious problems caused by the disaster. California, for
instance, is typical in limiting its scope to items which are “consumer food
items or goods, goods or services used for emergency cleanup, emergency
supplies, medical supplies, home heating oil, building materials, housing,
transportation, freight, and storage services, or gasoline or other motor
fuels.”6
3) Price Ceilings: The definitive feature of anti-gouging laws is the limit they
set on the maximum price that can be charged for specified goods. Such
limits are set either by prohibitions on “unreasonable,” “excessive” or
“unconscionable” price increases, or by specific limits on the percentage
increase in price allowed after the onset of the emergency.7 In the most ex
treme laws, the maximum allowable percentage increase is set at zero.8
This preliminary analysis leaves a number of important questions unresolved,
such as what ought to count as an emergency, which kinds of items are “necessary,”
and which of the varying methods of determining unacceptable price hikes should
be employed. These complexities will be explored to some extent in the remainder
of this paper. For the most part, however, the argument that follows will be broad
enough that the differences between various conceptions of price gouging will not
matter. Any conception of price gouging which fits the general outline above is
vulnerable to the kinds of criticism that I will make below.
It is worth noting the heavy strain of moralistic language running through the
various anti-gouging statutes. The vast majority of state statutes define the act of
price gouging in terms of normative concepts such as “unreasonable” or “uncon
scionable.” And both Arkansas and California claim in the preamble to their laws
that their restrictions are necessary in order to prevent merchants from taking “unfair
advantage” of consumers.9 These facts, along with the very name for the activity
(one usually finds the verb “gouging” in conjunction with the direct object “eyes”)
suggest that the concept of price gouging is moralized?part of what we mean in
saying that someone is engaged in price gouging is that they are doing something
wrong. To avoid settling the substantive question of the morality of price gouging
by definition, however, I propose that we understand the wrongness of price goug
ing in a prima facie sense. Thus, I suggest that we understand price gouging as a
practice in which prices on certain kinds of necessary items are raised in the wake
of an emergency to what appear to be unfair or exploitatively high levels.
Whatever its defects in terms of lack of precision, this definition should serve to
narrow the focus of our normative investigation. For, note what this definition does
n