Is there a profit margin that just screams price gouging?
So, I was wondering this the other day when I saw a plain white tee shirt go for over $300. It was made in China and had the same material as any other plain white tee shirt but it was from a well-known brand name. I understand that at some point, you're just paying for the name but does that really mean that the company isn't just taking advantage of its customers and price gouging? I am all for companies making the most money they can but is there a limit at all to how much you can rip someone off before it's finally deemed unethical business practice?
Answers ( 1 )
Great question, Nicholas.
There's two distinct parts to this: the ethical considerations of the practice and the specific price gouging consideration.
This example, no matter how egregious the mark-up may be, can't be considered as price-gouging as neither the supply nor demand is unreasonably constrained. A factory producing the goods at the same price as they would for any other brand is prima facie sufficient evidence on the supply side, while on the demand side there is nothing stopping the consumer from purchasing the similar, much cheaper product. If the company had a monopoly on clothing in a specific area and then charged a large markup, this would be an example of gouging. This is a simplification, but gets the idea across.
But what about the ethics? This is a far more complex question. In the interests of brevity we need to make some assumptions - for example that the products are really the same (some example: same fabrics; same design; same quality workmanship, same worker pay rates) and that there's no hidden costs incorporated into the brand name product (examples: shipping, carbon offset, extra quality assurance steps, repair/replacement policies). We reducing this to two identical products except from marketing and branding.
In this reductive world, we're still left with four categories of questions:
1) Subjective, utility-based questions that really should be asked by the consumer (e.g. Is the value of saying "It's a [brand name] tshirt" worth a 1000% markup?)
2) Common good questions (e.g. Does this pull prices up for everything else, and therefore cause hardship for people trying to afford basic clothing? Will it cause an economic 'bubble" that could burst and damage other people in the market?)
3) Profit distribution (e.g. Should the company share more of the profits with their workforce? (And does it matter if they are contracted or employees?))
4) "What else?" - what are the unintended consequences of doing this? If we look strategically at this instead of at a specific product does the picture change?
The premise here should be to ask the questions, not accept any individual's (even a Sage!) point of view as an absolute, so I hesitate to even go any further. As a start to the discussion, profit distribution will depend very much on your economic politics - and this leads to a whole range of discussions ranging from the international free movement of people and opposition to modern slavery through to neoliberal trickle-down economics, innovation, and income inequality. As you can see, reducing this to one "right" answer is problematic.
Specific to your question (How much can you rip someone off...?), this is an approach to the subjective, utility-based question. You clearly see this as a rip-off, but the person purchasing the product doesn't (otherwise, presumably, they wouldn't buy the product). What is the utility that they see in it? How was the value created? The ethical answer depends on this - if they're knowingly paying "rip-off" rates in order to support the designer who also does other, avant-garde fashion art then it's hard to argue that as being unethical; if they've been lied to about the supply chain then it is equally hard to argue that it is ethical. Are they just stupid? That argument seems based in prejudice rather than an analysis of different utility valuation.
Let me finish with asking a deliberately provocative inverse question: are you sure it is ethical to buy a $10 t-shirt? If the $300 price tag was because the company paid USA level wages to the factory workers and ensured their product supply chains were entirely ethical and environmentally sustainable and as a result $300 was the reasonable price for a tshirt - what does that imply is going on in the supply chain of the $10 tshirt? Perhaps this counter-example gives an insight into the consideration of ethics and justification of decision-making when it comes to product pricing.
Summary: It's not price gouging, but the ethics of the situation are very complicated and depend on subjective evaluations and considerations much broader than just the price point of the item. It is more important to be asking and reasking these questions than looking for absolute truth in such situations. Which makes your question an excellent one indeed.