Pandemic Pricing: Why Prices Need to Rise During Emergencies

When the coronavirus struck, there were shortages of masks to protect doctors and nurses from infection.

Usually, a sudden increase in demand causes prices to rise.

Higher prices encourage manufacturers to add shifts, hire more workers, and increase production.

If prices rise enough, companies that make other things may find it profitable to start making masks too.

If laws against so-called price gouging stop prices from rising, the financial incentive to increase production disappears, and there won’t be nearly enough masks to go around.

It may seem cruel and heartless to ask hospitals or people to pay higher prices for masks when they are desperately needed to save lives. But the alternative—a world where prices do not rise, and doctors and nurses go without masks—is cruel and heartless, too.

Higher prices discourage hoarding and buying masks just in case. That means more masks for people who desperately need them now. Buyers of masks pay a premium, but there are a lot more masks to go around and the incentive to expand production will reduce that premium over time. 

Instead of letting prices drive private choices, governments around the world stepped in to buy masks and distribute them centrally. Yet in the US, Spain, Germany, and the United Kingdom, the number of masks available was woefully inadequate. Doctors and nurses died for lack of protection.

Even in a crisis, it is better to use prices.