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Banning Price Gouging. What Do Economists Say? – WSJ

Summary:
Americans hate high prices, and Kamala Harris says she plans to combat them by banning price gouging in food and groceries. But, depending on what form it takes, economists could hate her plan. Vice President Harris, who will formally accept her party’s nomination at the Democratic National Convention in Chicago this week, has laid the blame for high food prices at the feet of businesses. Surveys conducted by Harvard University economist Stefanie Stantcheva show many people and Democrats in particular believe that corporate greed is to blame for inflation. The food industry has pushed back hard on that belief, arguing that the rise in prices has to do with the extraordinary economic reordering caused by the pandemic, which snarled supply chains,

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Harris’s team has offered few details so far. But here is what economists say about price gouging, what it is, and whether it is ideal—or even possible—to try to curb it.

Why groceries?

Ernie Tedeschi, formerly on the staff at President Biden’s Council of Economic Advisers, now director of economics at the Budget Lab at Yale University, points out that margins at food and beverage retailers have remained elevated relative to before the pandemic, while margins at other retailers, such as clothing and general merchandise stores, haven’t.

That could, he cautions, be a reflection of consumer choice—customers might have changed their preferences to items that are more profitable, such as private-label brands. Regardless, “economists need to be curious about this and figure out what is going on,” Tedeschi said. Retail trade net operating margins, four-quarter moving average Source: Commerce Department Note: Retail trade does not include food services and drinking places.

Banning Price Gouging. What Do Economists Say? – WSJ

What is price gouging?

Does controlling prices ever work?

Banning Price Gouging. What Do Economists Say? – WSJ

One place economists do accept some degree of price controls is in natural monopolies, points out Harvard economist Greg Mankiw, the author of a widely used introduction to economics textbook and a chair of the Council of Economic Advisers during former President George W. Bush’s administration. Utilities are an example. 

But the food business isn’t a monopoly, Most people, but not all, have the option of going to another store if one store raises its prices too much. Among economists, said Mankiw,

“Our assumption is that firms are always greedy and it is the forces of competition that keeps prices close to cost.”

Harris, for her part, has also said she wants to increase competition. Last week saying . . .

“My plan will include new penalties for opportunistic companies that exploit crises and break the rules, and we will support smaller food businesses that are trying to play by the rules and get ahead.”

The more her plan leans into increasing competition as a way to lower prices, and the less she leans into setting ceilings on prices, the more economists might like what she has to say.

Kamala Harris Wants to Ban Price Gouging. What Do Economists Say? Wall Street Journal.

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The software’s design and growing reach have raised questions among real estate and legal experts about whether RealPage has birthed a new kind of cartel that allows the nation’s largest landlords to indirectly coordinate pricing, potentially in violation of federal law.

Experts say RealPage and its clients invite scrutiny from antitrust enforcers for several reasons, including their use of private data on what competitors charge in rent. In particular, RealPage’s creation of work groups that meet privately and include landlords who are otherwise rivals could be a red flag of potential collusion, a former federal prosecutor said.

At a minimum, critics said, the software’s algorithm may be artificially inflating rents and stifling competition.

“Machines quickly learn the only way to win is to push prices above competitive levels,” said University of Tennessee law professor Maurice Stucke, a former prosecutor in the Justice Department’s antitrust division.

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