After considering the situation of market power for my software and how it changed after the introduction of competitors, consider situations of natural disasters and how governments respond to shortages resulting from them.
Read https://lawblog.legalmatch.com/2011/05/05/we-cant-stop-the-twisters-but-we-can-stop-price-gouging/ ;
what is the most likely way that anti-gouging laws potentially can increase social welfare?
a. They eliminate the deadweight loss associated with monopoly power (and prices) of price gougers. With lower prices, they increase consumer surplus.
b. Legislators and regulators benefit by making pronouncements against price gougers, knowing the public holds such a low opinion of them (the gougers, not the politicians 🙂 . The public sees swift action against profiteers, and legislators/regulators enhance their standing in the public eye.
c. Penalties assessed on price gougers can be redistributed to victims or the area at large that was affected by the natural disaster. In that sense, the government wants more illegal price gouging to occur so it can prosecute and raise more revenue in fines and redistribute to voters.
d. They increase the deadweight loss for those companies who practice price gouging. The laws raise these companies’ costs so that it is no longer profitable for the companies to set price according to MR=MCMR=MC.
In contrast, read thishttp://cafehayek.com/2012/11/gouging-reality.html
According to the post, why might anti-gouging laws not increase social welfare, or at least why might they lead to consequences which are unintended by the government?
a. The long lines associated with them is evidence of a surplus or excess supply, so society devotes too many scarce resources to gasoline production than it otherwise would in absence of the law.
b. The laws may increase consumer surplus, but they also reduce producer surplus, so society is no better nor worse off having the laws than it is not having them.
c. They create shortages (excess demand), which necessitate waiting in long lines for “cheap” products. Also, goods are distributed in ways that may not reflect the need of the buyer.
d. They try to prevent high prices, but do nothing to address the greed of the price gougers, which is the root of the problem.