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NYC vs Shopkeepers

Summary:
The Economist has a good piece on NYC cracking down on corner shops which set prices higher than NYC thinks is just. The story of your correspondent’s local corner shop offers a cautionary tale. This type of shop was once familiar in New York, but has largely been squeezed out by chains and bank branches. The owner is an immigrant who opens early and closes late. In crises the shop stocks the products that customers need. When flooding from Hurricane Sandy caused a blackout in 2012, it sold batteries, torches, candles and board games. During the pandemic it has been piled high with boxes of sanitiser, bleach, masks and gloves. Stocking up comes with risks. Acquiring inventory is costly. Demand drops off when normality returns—unwanted board games linger in the back of the shop. And this

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The Economist has a good piece on NYC cracking down on corner shops which set prices higher than NYC thinks is just.

The story of your correspondent’s local corner shop offers a cautionary tale.

This type of shop was once familiar in New York, but has largely been squeezed out by chains and bank branches. The owner is an immigrant who opens early and closes late. In crises the shop stocks the products that customers need. When flooding from Hurricane Sandy caused a blackout in 2012, it sold batteries, torches, candles and board games. During the pandemic it has been piled high with boxes of sanitiser, bleach, masks and gloves.

Stocking up comes with risks. Acquiring inventory is costly. Demand drops off when normality returns—unwanted board games linger in the back of the shop. And this time, the rules changed. In March a woman bought a box of masks (each mask costing $2), and then said she was from the city’s office of consumer affairs, and charged the shopkeeper for violating new price-gouging rules. Two days later, says the shopkeeper, another inspector charged the shop again, this time offering guidance on the right prices. Masks should cost no more than $1; gloves selling at $19.95 should sell for only $14.95. Each package marked above the permitted price would be fined $500. There were many packages.

…Shortly before a rescheduled hearing, the shop’s proprietor received an offer to settle the first charge for a little over $7,000. That is much more than his monthly profit, he says from behind the plastic screen now distancing him from customers, looking glumly at a stack of legal papers on his counter. But the fines would be ruinous….The shopkeeper will settle…Justice in the Big Apple has been opaque and costly—and raises the question of who precisely is being gouged.

As Luis Saravia de la Calle said in 1544:

Those who measure the just price by the labor, costs, and risk incurred by the person who deals in the merchandise or produces it, or by the cost of transport or the expense of traveling… or by what he has to pay the factors for their industry, risk, and labor, are greatly in error, and still more so are those who allow a certain profit of a fifth or a tenth. For the just price arises from the abundance or scarcity of goods, merchants, and money… and not from costs, labor, and risk. If we had to consider labor and risk in order to assess the just price, no merchant would ever suffer loss, nor would abundance or scarcity of goods and money enter into the question. Prices are not commonly fixed on the basis of costs. Why should a bale of linen brought overland from Brittany at great expense be worth more than one which is transported cheaply by sea?… Why should a book written out by hand be worth more than one which is printed, when the latter is better though it costs less to produce?… The just price is found not by counting the cost but by the common estimation. (Grice-Hutichinson, 110-111).

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Alex Tabarrok
Alex Tabarrok is Bartley J. Madden Chair in Economics at the Mercatus Center at George Mason University and a professor of economics at George Mason University. He specializes in patent-system reform, the effectiveness of bounty hunters compared to the police, how judicial elections bias judges, and how local poverty rates impact trial decisions by juries. He also examines methods for increasing the supply of human organs for transplant, the regulation of pharmaceuticals by the FDA, and voting systems.

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