The Colvin Brothers, arbitrage lords of hand sanitizer and price gouging
WASHINGTON: You’re shopping for toilet paper, surgical masks and hand sanitizer. You want to protect yourself and your loved ones from coronavirus. But store shelves are bare. Death’s icy breath caresses your neck and you cry out, why?! Who’s to blame? Profiteers. Price gougers. And in particular, Matt and Noah Colvin, the Tennesee hand-sanitizer pirates.
Price gougers gone viral
The Colvin brothers achieved national infamy on Saturday when the New York Times described their entrepreneurial spirit. They did what any good businessmen would: They bought low and sold high. What they bought and sold were face masks, anti-bacterial wipes, and hand sanitizer.
The story went viral, and the Tennessee Attorney General’s office announced that that it would investigate them for price gouging.
“We will not tolerate price gouging in this time of exceptional need, and we will take aggressive action to stop it,” said Attorney General Herbert H. Slatery III.
It would be hard to overstate the heinous nature of the Colvins’ behavior. Price gougers are lower than Harvey Weinstein. They deserve hard time and the hate of a righteous nation.
Unidentified Ebay listing at the time of this writing. Not the Colvin Bros.And possibly a medal. Why? Consider the case of Russian tomatoes.
Low prices for nothing better than high prices for something?
In Soviet days, tomatoes were dirt cheap, let’s say, 50 kopecks a kilo. That’s about 25 cents a pound. In post-soviet Russia, they cost $4 a kilo, and in hard currency only, please. That’s about an eight-fold price increase.
Russians complained bitterly about the price rise, some with considerable anger. One might ask, how often did they buy tomatoes in Soviet days? Almost never. There were rarely any tomatoes in the people’s food stores. But they were only 50 kopecks a kilo.
It was better to have the right to buy nonexistent tomatoes for 50 cents than the chance to buy real ones for four bucks.
Or so said the critics of Russia’s emerging capitalist markets. Some people prefer nonexistent goods that are cheap to actual goods that are expensive.
In praise of price gouging
And it is not just Russians. Americans would rather not have something cheap than have it dear. Suppose a hurricane is about to hit Florida. Some guy in Kentucky dismantles his plywood shed, loads it on a truck and takes it to Florida before the hurricane hits. He asks more – maybe much more – than Home Depot asked for it a month before. Hallelujah!
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What? Do you disagree? You want to arrest him for price gouging? Fine. He keeps his shed in Kentucky, and people who wanted the plywood in Florida don’t get it. The storm comes in through their living room windows and destroys their homes.
Are we happy now?
Arbitrage and risk: Nothing buys you nothing
What our would-be entrepreneur wanted to do is called arbitrage. Arbitrage moves goods from places where demand is low to places where it’s high. If that gets people things they wouldn’t otherwise have in their moment of need, why should we complain? If you don’t like it, go to a store that in theory will sell it cheap and stare at the price tag on the empty shelves.
If you want to stop the guy from Kentucky making obscene profits, then provide the plywood yourself at a lower price. Go buy the shed in Kentucky and take it apart and pay the cost of transporting it to Florida. If the storm changes course and the plywood doesn’t all get sold, ship it back to Kentucky or burn it or give it away, and write off the cost yourself.
Most people won’t take on large risks like that without the potential for big profits.
Whether the Colvin brothers actually performed that kind of arbitrage is an interesting question. Since coronavirus is coming to Tennessee as well as to New York, they took hand sanitizer that will be needed in Tennessee to sell in other places where people will need it too.
But these, presumably, will be people who can pay more for it than the people of Tennessee.
“I’m morally offended” is not an argument.
We probably agree that people in New York are no more deserving of life than people in Tennessee, regardless of willingness to pay. We’re morally offended that the activities of people like the Colvins favor people who can afford $50 bottles of Purell over people who can’t. But are they fundamentally different from the plywood arbitrageur?
Consider these facts as well. They were “price gouging” face masks along with hand sanitizer. Hospitals aren’t trying to get their masks from Dollar General stores in Tennessee, and the masks are essentially worthless for preventing the spread of coronavirus outside a hospital setting.
Also, hand sanitizer is less effective at preventing viral spread than soap and water. People would be better of buying a bar of soap than a bottle of Purell.
The Colvin brothers didn’t victimize the people of Tennessee by robbing them of badly needed hand sanitizer and face masks. If people in New York didn’t want to hunt for hand sanitizer in rural Tennessee themselves, why object that they paid “too much” for it from the Colvins?
Is profit offensive?
The Colvins pointed out that it costs a lot to ship hand sanitizer. It’s 60 percent alcohol or more, and that calls for special shipping. If they had made a low profit, would we mind that they sold the product for five or ten times its cost at the local Walmart?
If they sold it for a lower price but made a higher profit, would the attorney general be less upset?
Are we disturbed more by the price, or by the profit? This item has Ebay bids (meaning someone will pay the price) of $132.50? Again, a bar of soap is still cheap.
Your sense of morality may make you hostile to the activities of market buccaneers like the Colvins. You may argue that it’s just wrong to make a profit during an emergency, whatever price you charge, or that it’s wrong to charge high prices, even without profit.
The first charge is defensible, even if we don’t agree. The second is patently silly. It demands the theoretical right to buy nonexistent goods at low prices rather than provide actual goods at high prices.
The Colvins may not deserve a medal, but neither do they deserve an angry nation’s hate. At best or worst, they deserve to be left alone.