Meddling with prices is an irresistible temptation for governments, particularly in times of crisis. So, to avoid price gouging, the Italian government capped the price of surgical face masks on April 26. I’ve written on the issue for the Wall Street Journal, here.
A couple of things stand out in this story. First, the price was fixed at a level clearly below any sensible appraisal of the market price. The government itself was buying at 38 cents a mask, wholesale, and proposed retailers sell at 50 cents a mask. Why? If the price was fixed at, say, one euro a mask, perhaps it would have produced little damage, and the government could still claim it put an end to “speculation”.
So, why did they do something different? Well, I suppose the simplest answer is, alas, the closest to the truth: 50 cents sounded better than one euro. One euro is the price of an espresso. What a wonderful government, the one that allows you to buy two pieces of a life-saving device with the same money it will take you to buy a coffee!
Now, here comes an interesting development. The Italian Commissioner for the Coronavirus emergency made sure to clarify that he was regulating the price at which face masks ought to be sold, not the price at which face masks ought to be bought by retailers. Since retailers already bought masks at a higher price, this was meant to be a green light: go ahead, sell under costs, the government will step in and refund you. Pharmacists I talked with, however, did not do so: they were quite hesitant in taking the Italian government’s word for granted. So far, the subsidy has not yet been agreed.
Many comments on the WSJ website are humorous and funny. One claims that Italians now have received free face masks in the mail, from the government. Indeed, some Italians did receive one or a couple of masks for free from their regional governments. Still, it is worth remembering that a surgical one is supposed to be a single use, disposable device.
(cross-posted at the Adam Smith Institute)
