Are price ceilings counterproductive, even if implemented voluntarily?

Price ceilings lead to shortages, whether the price control is mandated by government or voluntarily implemented. In San Diego, many hotels reduced rates, rather than increase them, in light of the hordes of evacuees seeking shelter. A compassionate gesture? Maybe, but have they created adverse consequences?

Kirk Shaw, office manager at the city's Days Inn Harbor View said the facility has been flooded with evacuees, many of them coming from ravaged Ramona "saying that their houses were actually on fire."

The hotel has turned away dozens of guests in the past three days, Shaw said, during a time when business is traditionally slow. "People come in -- three four cars at a time -- saying they'd been driving around for like three hours and they needed a couple of rooms for their entire families, I didn't even have one for them, so I had to turn away entire families at a time."

Shelters are obviously an inferior good. There is no privacy; if you have small children it's difficult to keep tabs on them; the food is less than satisfactory; there is no television, at least private; sleeping is more difficult; etc. But there are available substitutes for one family staying in a local hotel, including staying with family, staying with friends, staying at a hotel farther away, staying with family farther away, staying in a camper,  sharing a hotel room with another family, etc.

At the margin, people are indifferent between two or more choices. If my reservation price for staying in a hotel is $200, then at any price above $200 I'll stay with 'Ol Crazy Aunt Millie rather than rent a hotel room. But if the hotel charges only $160, I'm staying at the hotel.

Keep in mind that there are others who don't have alternatives - or at least have less desirable alternatives than staying with their 'Ol CrazyAunt Millie - and might be willing to pay up to, say, $300 per night for a room for their family. But now that the hotel rooms are full they are unable to find a room.

My guess is that there are some families using two or more hotel rooms who would have doubled up or found alternative arrangements had the price of their rooms increased to, say, $400. There are also probably retired people staying in these hotels at the reduced rate who would have otherwise left town and stayed at a hotel in Vegas, Phoenix, or with relatives or friends in other cities. And there are probably families with small children, people whose jobs require them to remain nearby, people without family nearby, people who have loved ones in San Diego hospitals or hospice care, and so on who value a hotel room at more than $400 and yet are now unable to find a room.

It was a nice gesture on the part of the hotels, but I'd rather see compassion administered through the invisible hand of market prices.

Addendum: Edited for clarity.

Comments

[True_liberal]

When demand rises (hotel rooms for evacuees, plywood for wind damage, etc.) the free-market response is to increase the price. Some call this price gouging, but it's really the efficient allocation of scarce resources; the increased price helps ensure the resources are used by those who can make best use of them.

In the case of lumber and other building or emergency materials, the price rise tends to draw greater quantities to where they are most needed, thus decreasing the risk of more damage.

Hotel rooms? If an out-of-town visitor is persuaded by a price rise to stay a hundred miles up the coast, that's one more room made available for a local refugee.

I'm not saying that's the only way to ensure efficient allocation, but the "invisible hand" does a pretty good, and time-proven, job.