My colleague Scott Henry (https://blogs.ubc.ca/scotthenry/2013/09/30/price-gouging/) recently posted a defense of retailers increasing prices in times of natural disasters, arguing that increased profit potential would drive increased supply of necessities to help with recovery.

Although I agree with his point of increased supply, and allocating resources to those who value it most, I would hazard against the presumption that anti-price-gouging laws are inherently wrong. While price ceilings would create economic shortages, and thus inefficiency, it would be important to remember that remarkably large price increases, even if consistent with the equilibrium, would make it impossible for many people to purchase all the goods that they need in the short term. And whereas the argument made refers to a competitive market, is a disaster zone truly a free market? Are the barriers to entry too great to call it free?

Although an increased supply would come in time, as entrepreneurs outside that geographic market realize the new opportunity, this reaction would not be immediate. For that time period before imports arrive, a oligopoly  could form, hoarding supply, and pricing goods at the profit-maximizing point, higher than equilibrium. Private profit is gained at the expense of consumers, while extra supplies sit warehoused, out of reach to the needy.

In this situation of extraordinary demand, economic actors can become poised to act not in the freely-competitive fashion, but in one that maximizes their own benefit, overstepping the guide of the invisible hand. Government intervention could be necessary.