Price gouging is a term used by politicians to “prove” they are looking out for the people. It is also a term used to vilify businessmen and businesswomen.

The oil companies and gas stations are frequently a favorite target. As the price of gas goes up, those groups are accused of gouging the public. Congressmen were doing their best to look stern and chide the oil companies for their outrageous record profits. Of course, what those same politicians failed to mention was that the percentage of profit did not change for the oil companies during the spikes in gas prices, nor did those politicians mention that the taxes on a gallon of gas far exceed the profit margin on gas. Actually, the last thing most politicians want you to do is to cut back much on your driving, no matter what they say. Those gasoline taxes pay for a lot of pet projects.

What is a fair profit, anyway? Let’s do a quick comparison.

 

2008

2007

2006

 

Intel

 

 

Revenue

37,586,000

38,334,000

35,382,000

Net
Profit

5,292,000

6,976,000

5,044,000

Percent

14.08%

18.20%

14.26%

 

 

 

 

 

Google

 

 

Revenue

21,795,550

16,593,986

10,604,917

Net
Profit

4,226,858

4,203,720

3,077,446

Percent

19.39%

25.33%

29.02%

 

 

 

 

 

Microsoft

 

 

Revenue

58,437,000

60,420,000

51,122,000

Net
Profit

14,569,000

17,681,000

14,065,000

Percent

24.93%

29.26%

27.51%

 

 

 

 

 

Exxon-Mobil

 

 

Revenue

477,359,000

404,552,000

377,635,000

Net
Profit

45,220,000

40,610,000

39,500,000

Percent

9.47%

10.04%

10.46%

 

 

 

 

 

Wal-Mart

 

 

Revenue

405,607,000

378,799,000

348,650,000

Net
Profit

13,400,000

12,731,000

11,284,000

Percent

3.30%

3.36%

3.24%

 

 

 

 

 

Aetna

 

 

Revenue

30,950,700

27,599,600

25,145,700

Net
Profit

1,384,100

1,831,000

1,701,700

Percent

4.47%

6.63%

6.77%

As you can see, Wal-Mart, Exxon-Mobil, and Aetna (three corporations that have been vilified by many politicians) make a smaller profit by percentage than some of the IT giants. Competition is a big factor in that.

Desire works with demand to create profit. During times of natural disaster, resources are scarce. Keeping prices artificially low in the aftermath leads to gouging. After hurricane Isabel passed through Virginia in 2003, there was a great demand for generators to deal with the power outages. Home Depot brought in generators from all over the mid-Atlantic to deal with the problem, but prices were not raised. People cued for hours for the limited resource. Some people purchased a generator and went out to the parking lot to re-sell them at a tidy profit because the demand and desire were there.

Not all gouging allegations come from natural disasters, though. Just run a Google (or any search engine) search for cell text gouging. You’ll see story after story about how the cellular service providers are gouging users for texting. That is ridiculous. I have NEVER had a cell phone company say to me, “You MUST use text messaging.” It is a luxury. People CAN do without texting. If providers can make a profit from people insisting upon using a luxury, that is not a bad thing. After all, if the price keeps kids from texting, they may actually learn how to use WHOLE words and grammar. (I know. That’s very over-optimistic of me.)

Do I think it is a free-for-all in pricing? No, any businessperson has to realize that if prices are raised too high, there can and will be customer backlash later. It’s hard to maintain desire if you piss off your customer base.

If you feel there is such a thing as gouging, please be prepared to explain how you have any luxuries (things that aren’t food, clothing, minimal shelter, or basic transportation) or have any money left at the end of the year. Because if you do have anything nice or are saving money, you must be gouging your employer.

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