The coronavirus pandemic caused a shortage of access to certain goods, which sparked a return of the public debate about profiteering. Many are angry that businesses are using the opportunity to make too much profit.
But how much profit is too much profit and who gets to decide?
The objective of a business is to make a profit. That’s the very definition of success. We all agree on that.
And the best way to make a profit is to supply a product or service that’s in demand at a price low enough that people will pay for it, but high enough that it covers all your costs and then some.
That may seem pretty simplistic, but it’s how this whole system works. Businesses exist to make money, and that’s how they do it. There’s no reason to get angry about a business whose prices are too high, just don’t buy from them. If nobody buys from them, they’ll need to adjust their prices accordingly. That’s the beauty of economics and supply and demand.
The only solution to perceived profiteering would be to set a price cap on goods and services. That was touted as the answer when the prices of hand sanitizer went up by an average of 130% – much, much more in some cases.
There’s no other industry in which this works. There’s no set price for T-shirts. You can buy a T-shirt for a low price at Primark (well, not right now, but that’s another blog) or you can go to a high-end designer and pay a lot more. Same with cars, there are affordable cars and then there’s your Ferraris and your Aston Martins. Same with Apple products – they’re known to be fairly pricey, and the company has billions in the bank. Does that mean it makes too much profit? No, because if their prices were too high, people would shop with the competition instead.
Some argued that the government should get involved, but it’s not their place. Sure, they should be here to protect us against shady practices and unsafe goods, but it’s not for them to say what a business should charge.
And if we did set strict price ranges (and, in doing so, put a cap on profits), that would discourage others from entering the market. Take face masks, for example. They were in short supply not long ago, and that caused the prices to shoot up. But the high prices then encouraged other suppliers to start producing them – everyone from giant factories to sole traders on Etsy. That meant there were now more masks in stock, and the variety and availability brought the prices back down.
And isn’t that what everybody shouting “profiteering!” ultimately wanted? A ready supply of masks at reasonable prices?
But one final point that any business owner must remember: pricing (and your pricing decisions) can also be closely linked to reputation. If you choose to take advantage of a situation by putting your prices up but go too far, your customers will likely remember. It’ll sour your name to them, and they may even switch to a competitor for good. Those sort of long-term losses almost always outweigh short-term gains.
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