Alberto Cavallo, Eduardo Cavallo, and Roberto Rigobon have an interesting paper that looks at the 2010 earthquake in Chile and the 2011 tsunami in Japan and finds that in both cases disasters led to widespread shortages of many kinds of goods but did not lead to higher prices. In fact, "prices were stable for months, even for goods that were experiencing severe shortages."
Their research in Chile specifically suggests that firms feared sharp market-clearing price increases would lead to "customer anger" and thus departed in their strategies from what basic supply and demand economics would suggest.
Bryan Caplan had an interesting post recently about survey-based information on why wages don't fall during recessions and it turns out to be broadly similar—employers don't want to demoralize their workforce with wage cuts during demand shortfalls just as sellers don't want to alienate their customers with price hikes during supply disruptions. Outside of really simple commodity spot markets there are just a lot of considerations that go into price-setting that extend beyond your supply and demand considerations.
TODAY IN SLATE
Meet the New Bosses
How the Republicans would run the Senate.
The Government Is Giving Millions of Dollars in Electric-Car Subsidies to the Wrong Drivers
Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.
Cheez-Its. Ritz. Triscuits.
Why all cracker names sound alike.
Friends Was the Last Purely Pleasurable Sitcom
This Whimsical Driverless Car Imagines Transportation in 2059
- Protesters Take to the Streets to Sound Alarm on Climate Change in New York, Across the World
- Knife-Carrying White House Jumper is Vet who Feared “Atmosphere Was Collapsing”
- North Korea: American Sentenced to Hard Labor Wanted to Become “Second Snowden”
- Almost One in Four Americans Support Idea of Splitting From the Union
Did America Get Fat by Drinking Diet Soda?
A high-profile study points the finger at artificial sweeteners.