Price Gouging

Catching up on my blog reading over the weekend, I noticed a few interesting posts on Marginal Revolution about price gouging in flu vaccines (see the followup as well). Alex Tabarrok summarizes the problem quite well, and points out a key problem with trying to limit vaccine prices during a shortage:

If the firms can't price high during a shortage then there is no incentive to plan for a shortage.

But doesn't this mean that if prices are allowed to rise to clear the market, then you get a bunch of rich but healthy people getting vaccinated while some poor but vulnerable people go without? Not necessarily. The Boston Globe (sorry, no direct link--the Globe charges for its articles) reported on Friday on the approach being taken by the city of Boston:

CITY SEEKS TO BUY EXCESS FLU VACCINE
Published on October 15, 2004

To provide flu vaccine to those who need it most, the city of Boston announced yesterday a voluntary buyback program, encouraging employers who buy too much of the serum to sell it to the city for distribution to high-risk populations. The Boston Public Health Commission will purchase the excess vaccine and make it available for vulnerable persons including pregnant women, children, the elderly, and people with chronic medical conditions, officials said.

I think that this is the right approach. In fact, the city shouldn't just limit its purchases to "excess" vaccines. The city should figure out the marginal benefit of having another high-risk person vaccinated and purchase vaccines up to the point where the marginal cost of the vaccine just offsets that benefit. This approach provides the right incentives for the vaccine's producers and distributors to deliver more of the product--in future years if not this one--and it allows the city to allocate the vaccines as it sees fit.

The whole process shifts the costs to the public, but this is, at least to some degree, as it should be. It is the public's objective of ensuring that the most vulnerable populations are vaccinated with highest priority. (Though see Alex's discussion of those likely to spread the disease as potentially higher priorities for limited vaccines.) People can reduce the price that the city has to pay by voluntarily staying out of the market if they choose. The story in the Globe reminded me of the Nature Conservancy's land acquisition program--it would be nice to be able to steward key lands without owning them, but when necessary, they just buy the land so they can manage it as they see fit.

Of course, that wasn't the only story in the Globe about price gouging this weekend. There were also reports of the following:

FANS HIT WITH HIGH PARKING FEES
Published on October 16, 2004
Author(s): Heather Allen, GLOBE CORRESPONDENT

Being down two games to the Yankees in the American League Championship Series is bad, but paying $100 for parking in hope of witnessing a comeback is insufferable.

City officials say some parking lot owners near Fenway are trying to gouge game-goers with prices triple what they charge during the regular season or even higher.

Same deal. If you want parking to be available around Fenway during the playoffs, let the people who own land near the stadium charge what they want. At most, the Mayor's office--which was contemplating price regulations--should require lots to post their prices visibly so that people can make an informed choice without contributing to traffic jams.

Of course, any Sox fan who attended Saturday's game deserves a refund of more than just the parking fees.