Price Gouging the Desperate

A famous scene from Shakespeare’s Richard III:

ACT V SCENE IV. Another part of the field.

Alarum: excursions. Enter NORFOLK and forces fighting; to him CATESBY

CATESBY

Rescue, my Lord of Norfolk, rescue, rescue!
The king enacts more wonders than a man,
Daring an opposite to every danger:
His horse is slain, and all on foot he fights,
Seeking for Richmond in the throat of death.
Rescue, fair lord, or else the day is lost!

Alarums. Enter KING RICHARD III

KING RICHARD III

A horse! a horse! my kingdom for a horse!

CATESBY

Withdraw, my lord; I’ll help you to a horse.

KING RICHARD III

Slave, I have set my life upon a cast,
And I will stand the hazard of the die:
I think there be six Richmonds in the field;
Five have I slain to-day instead of him.
A horse! a horse! my kingdom for a horse!

Exeunt1

We have previously posted a detailed analysis of whether the trade King Richard proposes would constitute אונאה; the issue is whether one who pays more than the normal price out of desperation subsequently has a claim of אונאה. I recently encountered discussion of this case in R. Dr. Aaron Levine’s Case Studies In Jewish Business Ethics:

While a complaint of overcharge is not given validity when the reference price is anything but the current market norm, an exception to the rule can be identified: “It has been taught, R. Judah b. Batera [mid-1st. cent.] said: The sale of a horse, sword, and buckler on [the field of] battle is not subject to ona’ah, because one’s very life is dependent upon them.”

Given the life-threatening environment of the battlefield, the vendee would pay, if he had to, any sum to acquire the implements of war. Economists describe a desperate need of this sort with the phrase “perfectly inelastic demand.” Consider, too, that the buyer, for all intents and purposes, will not hazard to investigate market alternatives during a raging battle. The vendor therefore enjoys a monopoly position here.

Since the vendee’s demand for a horse or weapon in the battlefield zone is perfectly inelastic, he certainly receives subjective equivalence for whatever price he agrees to pay for these articles. This is the reasoning of R. Judah b. Batera. Whether his ruling represents mainstream talmudic thought is a matter of dispute among the early decisors. [R. Dr. Levine proceeds to cite various poskim who address this question, whom we have cited in our previous post.] …

The acceptability of R. Judah ben Batera’s opinion, according to R. Moses ha-Kohen of Lunel, a thirteenth-century French decisor, hinges heavily upon the validity of assimilating his battlefield case with the fugitive-ferryman case discussed at Bava Kamma 115a. Here, the Talmud relates that if an absconding criminal agrees to pay a ferryman an above-market price to provide him with conveyance across a river, he is entitled to recoup from the ferryman the differential involved.

The point of similarity between the two cases is that in both instances the buyer’s interest in the product involved is price-inelastic; i.e., he would agree, for all intents and purposes, to pay any price the seller insists on. In the ferryman-fugitive case, since the conveyance averts the fugitive’s imminent capture, the latter certainly receives subjective equivalence in his transaction with the ferryman. Nevertheless, if his fugitive status were removed, his demand for the conveyance would probably be described as price-elastic, and he would presumably not value the service above market price. With his price-inelastic demand reflecting transitory subjective value, the fugitive is entitled to recoup from the ferryman any amount he paid him above the competitive norm. Similarly, remove the condition of war and the vendee would presumably not agree to pay the asking price at hand for the implements of war.

Though R. Moses ha-Kohen advances no specifics to explain why this assimilation should be rejected, two points of dissimilarity stand out. First, whereas the demand-inducing factor in the battlefield case affects all market demanders equally, causing the aggregate demand schedule for implements of war to shift upward, no such upward shift in demand occurs in the fugitive-ferryman case. The demand-inducing factor uniquely affects the fugitive’s subjective evaluation of the ferryman’s services, leaving everyone else’s demand for the service unaffected. Second, whereas a competitive norm exists for the services of the ferryman at the time the fugitive struck his bargain, no competitive norm exists at the time an individual buys implements of war on a battlefield. While the commercial market for horses and weapons is normally subject to a competitive norm, the marketplace for these articles completely collapses within the framework of the battlefield zone. The economic environment that prevails in such a scene effectively precludes the emergence of a competitive price for these articles. Resource mobility and knowledge of market alternatives are conspicuously absent here, as the movement of market participants is severely restricted. With economic activity characteristically unorganized and sporadic, the market for these articles becomes minutely fragmented. Within this framework, price is determined by the individual bargains buyers and sellers reach. Since the buyer’s bid determines value here, his ona’ah claim should be denied, notwithstanding the circumstantial nature of his demand in this case.

What proceeds clearly from the school of thought that accepts the analogy between the fugitive-ferryman case and the battlefield case is the general principle that exercise of monopoly power, when the relevant aggregate demand schedule is perfectly inelastic, is ethically immoral.

Selling at whatever price the market will bear when the relevant demand the monopolist faces is price-elastic, however, presents no moral issue in Jewish law. This is evident from the long-standing sanction given to the communal practice of auctioning the privilege of performing a public ceremonial function of a religious character to the highest bidder. With the ceremonial honor put up for sale unavailable elsewhere, the competitive bidding among the auction participants determines value. Hence, no moral issue is raised here. Capitalizing on “site value”, auctioning a rare painting, and selling the patent rights of a new invention to the highest bidder provide other examples of monopoly pricing under conditions of elastic demand.2

The basic inference from the case of the fugitive and the ferryman of the general principle that a deal made by someone “under pressure” to pay an unfairly high price need not be subsequently honored is also articulated by Ritva:

גמרא קידושין

רב כהנא שקיל סודרא מבי פדיון הבן אמר ליה לדידי חזי לי חמש סלעים אמר רב אשי לא אמרן אלא כגון רב כהנא דגברא רבה הוא ומבעי ליה סודרא ארישיה אבל כולי עלמא לא כי הא דמר בר רב אשי זבן סודרא מאימיה דרבה מקובי שוי עשרה בתליסר:3

ריטב”א

פירוש וקים לן ודאי דשוה חמש לדידיה, אבל כולי עלמא דלא שוי’ ליה לא, ואף על גב דקבלי’ עליה לאו כל כמיניה.
ושמע’ מהכא שהמוכר חפץ לחבירו בשית ובשוק לא שוו אלא חמשה, אי להאי לוקח שוי שיתא אין בו אונאה, דבתר דידיה אזלינן, כי היכי דחשבינן ליה הכא דשוי חמש סלעים,
מיהו בדשוי’ לזבונא שיתא כי אורחיה, אבל אי לדידיה לא שוי’ אלא מפני שהוא דחוק בדבר, האי ודאי קציצה מתוך בדחק לא שמיה קציצה, ואפילו נתן לו הדמים חוזר וגובה אותם ממנו, והכי מוכח ביבמות … ושמעינן מינה שכל המתנה בשכירות יותר מכדי דמים מפני האונס ודוחק השעה שלו, יכול לומר משטה אני בך, ומכאן ללוקח סמנין הרבה בדמים יקרים מפני חולי הדוחק, דלא מחייב אלא בדמיהן וכן כל כיוצא בזה, מיהו אם התנה בשכר הרופא הרבה, חייב ליתן, שחכמתו מכר לו ואין לה דמים, וכן כתב אדונינו הרמב”ן ז”ל, וכן שמעתי מפי מורי נר”ו.4

It is worth noting that among contemporary secular economists and philosophers there is also no consensus on whether taking advantage of the misfortune of others to profit by raising prices constitutes immoral “price gouging” or is merely the standard and legitimate business practice of “charging what the market will bear”; here’s how Prof. Michael J. Sandel, an expert on the subject of justice, describes the debate (h/t: Minds and Discourse):

In the summer of 2004, Hurricane Charley roared out of the Gulf of Mexico and swept across Florida to the Atlantic Ocean. The storm claimed twenty-two lives and caused $11 billion in damage. It also left in its wake a debate about price gouging.

At a gas station in Orlando, they were selling two-dollar bags of ice for ten dollars. Lacking power for refrigerators or air-conditioning in the middle of August, many people had little choice but to pay up. Downed trees heightened demand for chain saws and roof repairs. Contractors offered to clear two trees off a homeowner’s roof — for $23,000. Stores that normally sold small household generators for $250 were now asking $2,000. A seventy-seven-year-old woman fleeing the hurricane with her elderly husband and handicapped daughter was charged $160 per night for a motel room that normally goes for $40.

Many Floridians were angered by the inflated prices. “After Storm Come the Vultures,” read a headline in USA Today. One resident, told it would cost $10,500 to remove a fallen tree from his roof, said it was wrong for people to “try to capitalize on other people’s hardship and misery.” Charlie Crist, the state’s attorney general, agreed: “It is astounding to me, the level of greed that someone must have in their soul to be willing to take advantage of someone suffering in the wake of a hurricane.”

Florida has a law against price gouging, and in the aftermath of the hurricane, the attorney general’s office received more than two thousand complaints. Some led to successful lawsuits. A Days Inn in West Palm Beach had to pay $70,000 in penalties and restitution for overcharging customers.

But even as Crist set about enforcing the price-gouging law, some economists argued that the law — and the public outrage — were misconceived. In medieval times, philosophers and theologians believed that the exchange of goods should be governed by a “just price,” determined by tradition or the intrinsic value of things. But in market societies, the economists observed, prices are set by supply and demand. There is no such thing as a “just price.”

Thomas Sowell, a free-market economist, called price gouging an “emotionally powerful but economically meaningless expression that most economists pay no attention to, because it seems too confused to bother with.” Writing in the Tampa Tribune, Sowell sought to explain “how ‘price gouging’ helps Floridians.” Charges of price gouging arise “when prices are significantly higher than what people have been used to,” Sowell wrote. But “the price levels that you happen to be used to” are not morally sacrosanct. They are no more “special or ‘fair’ than other prices” that market conditions — including those prompted by a hurricane — may bring about.

Jeff Jacoby, a pro-market commentator writing in the Boston Globe, argued against price-gouging laws on similar grounds: “It isn’t gouging to charge what the market will bear. It isn’t greedy or brazen. It’s how goods and services get allocated in a free society.” Jacoby acknowledged that the “price spikes are infuriating, especially to someone whose life has just been thrown into turmoil by a deadly storm.” But public anger is no justification for interfering with the free market. By providing incentives for suppliers to produce more of the needed goods, the seemingly exorbitant prices “do far more good than harm.” His conclusion: “Demonizing vendors won’t speed Florida’s recovery. Letting them go about their business will.”

Attorney General Crist (a Republican who would later be elected governor of Florida) published an op-ed piece in the Tampa paper defending the law against price gouging: “In times of emergency, government cannot remain on the sidelines while people are charged unconscionable prices as they flee for their lives or seek the basic commodities for their families after a hurricane.” Crist rejected the notion that these “unconscionable” prices reflected a truly free exchange:This is not the normal free market situation where willing buyers freely elect to enter into the marketplace and meet willing sellers, where a price is agreed upon based on supply and demand. In an emergency, buyers under duress have no freedom. Their purchases of necessities like safe lodging are forced.The debate about price gouging that arose in the aftermath of Hurricane Charley raises hard questions of morality and law: Is it wrong for sellers of goods and services to take advantage of a natural disaster by charging whatever the market will bear? If so, what, if anything, should the law do about it? Should the state prohibit price gouging, even if doing so interferes with the freedom of buyers and sellers to make whatever deals they choose? …

Sandel continues with his analysis of the issue.

I recently gave a brief talk on the possibility of rescission of a deal made by someone under pressure, in the context of the broader question of the halachic valuation of something that is worth more to a specific individual than the price assigned to it by the market; the lecture is available, along with some brief notes on the general topic, at the Internet Archive.

  1. Richard III, Act V Scene IV []
  2. R. Dr. Aaron Levine, Case Studies in Jewish Business Ethics, pp. 158-60. []
  3. קידושין ח.‏ []
  4. חידושי הריטב”א (מוסד הרב קוק) שם עמודים עד-עה ד”ה לעולם. []

A Horse! A Horse! My Kingdom For A Virtual Horse!

Thomas McDonald does not like the free-to-play monetization model for computer games; one of his objections is the ability of the producers to take advantage of the consumer once he finds himself in a virtual tight spot:

Thomas McDonald

Game Theory

A $5,000 ‘Free Lunch’

Epic’s Tim Sweeney says it’s the next big thing. After Crysis 3, Crytek is focusing on it exclusively. John Riccitiello and Peter Moore [EA], Yves Guillemot [Ubisoft] and American McGee are saying it has a bright future. The verdict is in, and “free-to-play” is the new black.

When Peter Moore gets excited about something, it’s time to make sure you have a good hold on your wallet, because it’s about to get picked. You want to know what has John Riccitiello pumped? The realization that some gamers are paying $5,000 a month to pay the “free” FIFA Ultimate Team.

What the money men are looking at is something called ARPU, which is “average revenue per user,” and it’s much, much higher for freemium games. You ever look in the App Store for the most profitable iOS games? Ever notice something? They’re all “free.”

Gamers are paying more, on average, to play for free than they do for $60 SKUs. This is because the costs tend to be hidden and the expenses creep up on you. A buck here, five bucks there; a little horse armor here, a new character set there: Each microtransaction feels fairly small, and thus lowers the consumer’s natural psychological resistance to spending large amounts of money. But each of those transactions adds up very quickly. People pay more per user on freemium than they do on premium because they’re being manipulated.

Gamers get committed, and then rather than reaching a single tipping point and investing once in a game, they make repeated, impulsive choices to repeatedly invest smaller amounts, often losing track of just how much they’ve spent. As Riccitiello observed to shareholders, “When you are six hours into playing Battlefield and you run out of ammo in your clip and we ask you for a dollar to reload, you’re really not that price sensitive at that point in time.”

Just stand back and soak in the crass manipulation of that statement, and then tell me with a straight face that F2P is good for gamers.1

This is a virtual version of the classic scenario discussed by רבי יהודה בן בתירא:

ר’ יהודה בן בתירא אומר אף המוכר סוס וסייף וחטיטום במלחמה אין להם אונאה מפני שיש בהן חיי נפש:2

This ruling appears in the context of certain other exceptions to the halachah of אונאה:

מתני’ אלו דברים שאין להם אונאה העבדים והשטרות והקרקעות וההקדשות …

רבי שמעון אומר קדשים שהוא חייב באחריותן יש להן אונאה ושאינו חייב באחריותן אין להן אונאה

רבי יהודה אומר אף המוכר ס”ת בהמה ומרגלית אין להם אונאה אמרו לו לא אמרו אלא את אלו:3

תניא רבי יהודה אומר אף המוכר ספר תורה אין לה אונאה לפי שאין קץ לדמיה בהמה ומרגלית אין להם אונאה מפני שאדם רוצה לזווגן אמרו לו והלא הכל אדם רוצה לזווגן ורבי יהודה הני חשיבי ליה והני לא חשיבי ליה ועד כמה אמר אמימר עד כדי דמיהם תניא ר’ יהודה בן בתירא אומר אף המוכר סוס וסייף וחטיטום במלחמה אין להם אונאה מפני שיש בהן חיי נפש:4

Remach is uncertain of the normativeness of the position of רבי יהודה בן בתירא:

תניא ר’ יהודה בן בתירא אומר אף המוכר סוס וכו’

איכא מאן דפסק כר’ יהודה דאמר אין להם אונאה ללוקח

ורבינו האיי פסק דכל הני אית להו אונאה

מיהו נראה לומר דסייף וחטיטום וסוס במלחמה לית דינא ולא דיינא דלית להו אונאה כר’ יהודה בן בתירא דליכא מאן דפליג עליה בברייתא

ומצינן למימר לאידך גיסא דאפילו במלחמה יש להם אונאה הא לא דמיא אלא למי שהגיע לעבור בנהר ולא רצו לעוברו בפחות מדינר ופסק עמהם בדינר והעבירוהו דאמר אין להם אלא שכרן הראוי להן. וצ”ע. הרמ”ך:5

But while many Rishonim, as well as Maran, definitively side with the חכמים against רבי יהודה of the Mishnah with regard to Torah scrolls, animals and jewels, none of them (aside from Remach) take a clear position on the ruling of רבי יהודה בן בתירא:

Rav Hai Gaon

ואלו דברים שאין להם אונאה העבדים והשטרות והקרקעות … רבי יהודה אומר אף המוכר ספר תורה בהמה ומרגלית אין להם אונאה אמרו לו לא אמרו אלא אלו …

ותדע דכל כמה שיש בעולם יש בהן דין אונאה לבר מאלו הממכרים שהזכרנו כאן כגון הקרקעות והעבדים והשטרות ומכירת שטרות וההקדשות וכמו שאפרש בהלכות הקדש בשער שתראה לקמן שהפרדתי לו.6

Rif

איכא מאן דאמר מדחזינן סוגיא דשמעתא לפרושי טעמיה דר’ יהודה שמעינן מינה דהלכתא כוותיה

והא נמי דרבי יהודה בן בתירא ברבי יהודה דמתניתין שייכא דאזיל בתר אומדנא

ורבינו האי גאון זצ”ל לא קא פסק הכי בספר מקח וממכר אלא פסק דכל זביני אית בהו אונאה בר מאלין דמתני’ העבדים והשטרות והקרקעות וההקדשות:7

Rambam

אלו דברים שאין להם הונייה. הקרקעות והעבדים והשטרות וההקדשות. אפילו מכר שוה אלף בדינר או שוה דינר באלף אין בהן הונייה. שנאמר או קנה מיד עמיתך. דבר הנקנה מיד ליד. יצאו הקרקעות ויצאו עבדים שהוקשו לקרקעות. ויצאו שטרות שאין גופן קנוי אלא לראיה שבהן. עמיתך ולא הקדש:8

הבהמה. והמרגלית. והסייף. וספר תורה הרי הן כשאר מטלטלין ויש בהן הונייה. אין לך דבר שאין בו הונייה חוץ מארבעה דברים שמנו חכמים. והוא שיהיה מוכר [או] קונה בנכסי עצמו כמו שביארנו:9

Magid Mishneh

הבהמה והמרגלית וכו’. דברים אלו מחלוקת במשנה (דף נ”ו) ובריי’ (דף נ”ח:) פ’ הזהב ופסק כרבנן דמתני’ וכן דעת ההלכות:10

Tur

ובכל דבר שייך אונאה בין בפירות בין בבהמה בין בספרים ואבנים טובות ומרגליות:11

Maran

בכל מטלטלים שייך אונאה אפילו בספרים ואפילו באבנים טובות ומרגליות12

עיין פרישה שם כתבתי דהוצרכו הפוסקים לפרוט הני לאפוקי מר’ יודא דאמר אין אונאה לספר תורה ובהמה ומרגליות …13

It is tempting to suggest that Rambam’s inclusion of סייף in the list of items that “are like other personal property”, a list that מגיד משנה explains comprises Talmudically disputed items, is a reference to, and rejection of, the position of רבי יהודה בן בתירא, but if so, Rambam’s failure to mention the crucial context of battle is puzzling, as is Maran’s preference for the language of Tur over that of Rambam, in light of his general partiality, particularly in חושן משפט, to the codification and phrasing of the latter.

  1. Maximum PC, Oct. 2012 p. 10. []
  2. בבא מציעא נח: – קשר []
  3. שם נו.-: – קשר []
  4. שם נח:‏ []
  5. שיטה מקובצת שם ד”ה תניא ר’ יהודה בן בתירא אומר – קשר []
  6. ספר המקח והממכר לרבינו האי גאון (ווין תק”ס) שער ל”ה אות ט”ו עמוד ע. – קשר []
  7. רי”ף, לב: בדפי הרי”ף – קשר, הובא ברא”ש שם פרק ד’ סימן כ”א – קשר []
  8. משנה תורה מכירה יג:ח – קשר []
  9. שם הלכה יג – קשר []
  10. מגיד משנה שם – קשר []
  11. טור חושן משפט סימן רכ”ז אות י”ד – קשר, ועיין פרישה שם []
  12. שלחן ערוך שם סעיף ט”ו []
  13. סמ”ע שם ס”ק כ”ה []