Inframarginalism Monopolization Regulation

Confusing Scarcity with Monopoly: 1803 Edition

Proposed regulations would read New York’s law against price gouging to police gouging by small firms less strictly than gouging by big firms. I’ve argued that this confuses scarcity with monopoly.

Price gouging is the exploitation of natural scarcity to charge higher prices. Monopoly is the creation of artificial scarcity in order to charge higher prices. Big firms have the power to create artificial scarcity. But all firms can equally take advantage of natural scarcity to rip the public off. So there’s no good reason to apply a more lenient price gouging standard to small firms.

It turns out that New York Attorney General Letitia James is not the first person to get the distinction between natural and artificial scarcity wrong.

Hapsburg Austria did too.

According to a book by David J. Gerber, an 1803 statute invalidated cartel agreements “to prevent merchants from profiting from shortages caused by the Napoleonic wars, particularly in necessities such as food” (p. 53).

The law’s authors don’t seem to have reflected that the point of a cartel is to agree on output reductions and thereby to create an artificial shortage. If the Napoleonic wars have created the shortage for you, then you don’t need to form a cartel to create one.

You just raise prices.

An anti-cartel law is therefore not going to be effective at keeping prices down in wartime. Or anytime prices are driven up by natural scarcity.

It is an amazing but true fact that antimonopoly policy won’t solve every economic problem. But it does seem to have the notable property of enabling us to remake every economic mistake.