The U.P. Energy Task Force’s 14th recommendation encourages the Michigan Legislature to explore the possibility of enacting legislation limiting “price gouging” in case of a disruption in the Upper Peninsula’s propane supply. These sentiments are easy to understand, as no one wants their misfortunes misused as fodder for a predatory business.
At the same time, regulators must realize that prices provide incentives for businesses to supply products that customers want or need. But legislation that places an artificial ceiling on the price of a commodity can prolong the shortage of that product when it is needed most.
The feasibility of shipping propane to distant locations depends on its price. Distant propane suppliers will not enter the market if mandates force them to sell at a loss. But as shortages push prices up, those suppliers may find it worthwhile to meet this demand. This is how prices efficiently allocate resources to where they are needed most. Artificial limits on prices disrupt this mechanism and ensures that less propane will be available than otherwise would be.