Price Gouging and the Entrepreneurial Spirit in Post Maria Dominica
When a commodity is scarce or it is in high demand, the selling price is expected to increase. Alternatively, when there is an abundance of supply, or the demand for an item is low, merchants are expected to reduce the selling price of the product in question. This is just one of the basic principles of Microeconomics that is expected to apply in the free market economic system we believe is operating in Dominica.
It is also expected that entrepreneurial spirit will take hold among the enterprising whenever the right opportunities are presented. Entrepreneurs will recognize that society is in need of a particular good or service, and will gather their available resources and find creative or innovative ways to capitalise on the new opportunities.
Replacing the many jobs that were directly impacted by the hurricane will be a challenge to the private and public sector alike. However, if the entrepreneurial spirit is kept alive, there is opportunity to earn decent and honest wages as the nation recovers from the ravages of Hurricane Maria. The passage of natural disasters provides several opportunities for new endeavours that can transmute into revenue generators. The loss of the regular electrical power supply for home users has created a new market for the charging of laptops, tablets, mobile phones and other electronic gadgets through the use of generators. Decent wages can now be earned with a shovel and a pair of rubber boots, clearing debris, operating a chain saw or installing tarpaulins to cover damaged roofs.
Those who quickly grabbed these opportunities to generate income for themselves and their families are displaying an admirable aptitude for enterprise and entrepreneurship in the face of daunting odds.
The same high regard cannot be had for some of the already established business owners who are now taking advantage of an already distressed population. These include supermarket retailers, vegetable vendors, tire repairmen, bar owners, bakers and tradesmen among several other service providers. The ridiculous hike in prices seems to be the “in style” thing for some merchants as the “lost roof” is for the average Dominican.
This unfair pricing of goods and services that Dominicans are experiencing post Maria, should not come as a surprise within the context of the law of supply and demand, a basic economic theory. However, if other factors that influence the pricing of commodities are considered, the price gouging can be considered malicious and inconsiderate and an exploitation of disaster victims by callous merchants who can’t see beyond the liquidation value of the potential dollar.
Profit maximization is expected to be a major consideration of every trader, and the selling price of the commodity is a key determinant of profit. Before deciding on the selling price however, merchants usually consider a variety of factors. The direct cost of obtaining the product and the allocation of overhead costs are, in most cases, two of the main variables considered before applying a mark-up, to arrive at a selling price.
In some cases, overhead determines the difference in the prices of identical items sold by different establishments. Take for instance two supermarkets with similar operational size and capacity. Supermarket X is air conditioned (AC) and supermarket Y is not. Because of the AC, supermarket X is expected to have a higher overhead cost, and therefore is expected to sell at a higher price. This also means the customer shops in greater comfort, and receives greater value for money when shopping at X. As a result of Maria’s destruction of the country’s electrical power supply, some business establishments now resort to the use of generators to supply electricity for their operations. In many cases the wattage of these generators is insufficient to produce adequate power for the business to operate as effectively as in the pre-Maria period. Consequently, the merchant is forced shut down or restrict the use of some of the machinery or equipment that normally comforts the customers while shopping; reducing the overhead cost to the business owner in the process. As a result, patrons are left to shop in far less comfortable environments than they are accustomed to. Business places are now more crowded, hotter, and lighting is much poorer.
Furthermore, entertainment previously enjoyed from the televisions or stereos mounted on the wall is no more. The refrigerated items are also less cold, or less frozen. With this significant reduction in value for the customers’ dollar, combined with the reduced overhead cost to the merchant, one must question the justification for the sudden increases in prices.
Why should the tire repairman charge ten dollars to inflate a flat tire? At this time, his shop may be one of the very few tire repair shops operating, thereby providing a rush of customers in one day that he would previously serve in a week. Why should the price of a beer increase from five to seven dollars, when customers of a particular bar can no longer enjoy the comfort of watching a football game on television, while enjoying the beer that is normally twice as cold?
With the devastating effects of Maria, and the unscrupulous looting that immediately followed, many of our businesses will struggle to reopen their doors. Unfortunately, some will never be able to function again. This will create a major void and considerably reduced competition for the remaining businesses. Less competition means more customers, which will lead to increased revenue and eventually greater profits. With prudent management and fair pricing these establishments will then be able to rely on internal growth for expansion that will allow them to recreate the many jobs that were lost as a result of Hurricane Maria. The knee jerk reaction to Hurricane Maria that has resulted in price gouging is, therefore, an indication of limited business foresight and outright greed.
It would be unfair to cast every business operation in Dominica in this dark shadow. In fact, we should commend those establishments that worked assiduously to re-open soon after the hurricane. These enterprises were not only able to serve the public under challenging circumstances but resisted the temptation to jack up their prices in the immediate aftermath of the storm. Instead, in many instances, some prices of basic commodities were either reduced, or the products were given away for free.
At some point Dominicans will again have many options when deciding where to spend their hard earned dollar. It should be no surprise if they choose to patronise those establishments that were most considerate to them at their most vulnerable.
Ronald Smith MBA
Lecturer of Business Administration and Entrepreneurship
Dominica State College
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