I was listening to Bill O’Reilly on my way to work and he was ranting about the price of oil and how oil companies are price gouging. This got me thinking…what does O’Reilly mean by price gouging?
If we define price gouging as O’Reilly does: profits increasing as prices increase, then any and all firms are likely price gougers. After all, even for a perfectly competitive firm profits are increasing in the price. If we define price gouging as exercising market power, then in this situation most firms are going to be price gougers. Every firm exercises whatever market power it has. A perfectly competitive firm has very, very little market power, while a monopolist has quite a bit of market power. Since O’Reilly (who sells himself to the public) is a monopolistic competitor he has significant market power and is thus a price gouger.
The only way out is to restrict the term price gouging to a state of emergency such as things like food, water, and shelter right after a disaster such as a hurricane, earthquake or even a war. However, this would not apply to oil companies at the moment as there has been no such disasters here in the U.S. that woud restrict supplies to the current stock of gasoline in the tanks at gas stations and cars. So, this definition cannot be the one O’Reilly is using and we are left with either of the two above and that O’Reilly is himself a price gouger.
