The Inverse of Price Gouging

Hurricane Andrew decimated Miami in August 1992.  Its powerful winds ripped the front and back doors off our house and carried one of our skylights down the block, while the accompanying rain soaked all of our walls and left three inches of water throughout most of the house.  The aftermath of Hurricane Andrew was one of the darkest moments of my 14-year-old life.  Driving around the city conjured up images of a war-torn or third-world country, families clutching each other sobbing over the rubble that was once their home.

And then there were the assholes selling bags of ice for $10 each.  They knew that almost everyone in Miami was without electricity and had to preserve as much of their perishable food as possible.  The sellers had all the power (no pun intended).  Sure, temporary market forces allowed them to charge such egregious prices, and capitalists may say these ice-swindlers were being adequately compensated for their scarce asset.  But in my view this was an insensitive and disgusting practice of price gouging.

Right now our economy is in a reverse situation.  Buyers have all the power.  As consumers [or VC investors], we are justified in seeking a good deal on a new sofa [or a startup], but we must make sure we do not exploit the situation like the guys selling bags of ice for $10.  While temporary market forces may allow us to exploit sellers, it would be insensitive and ugly to do so.  Just as what goes up must come down, what goes down eventually comes back up; and what will distinguish you from your neighbor is your reputation.

As a footnote, in the aftermath of Hurricane Andrew, Home Depot stores in South Florida sold their wares at cost for one month.  The brand equity and loyalty this engendered was felt for years afterwards.


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