The book is The Price of Everything: A Parable of Possibility and Prosperity by Russell Roberts. A very well written book with a storyline, set in Berkeley and Bay area. That alone gets stars from me. If you are exposed to economics or a practitioner you will be bored especially with the parables trying to teach you. On the other hand, if you find it hard to explain to your friends and colleagues market economy, price discrimination and dynamic pricing this book will give you pithy stories to tell.
The book starts with what most people and media would call as price gouging. The scene is aftermath of a mild earthquake when there is a sudden spike in demand for flashlights, candles and baby formulas. The story’s protagonist Ramon was shopping for flashlights. The local Home Depot was completely sold out but another retailer had supplies – at twice the regular price. Is this price gouging? How dare a retailer profit from an emergency and squeeze their customers when they most need the supplies?
This leads to a series of events, later on in the book the question is put back to the readers, “Would you rather shop at a store that charges the same price all the time and runs out of stock in emergencies or shop at a store that has differential pricing and does not run out of essentials when demand spikes?”
This I think is a great way of teaching (that is if you are a reader looking for learning from the book) – set up the problem, the context and also toss in conventional wisdom (which not only not wisdom but down right wrong), let the reader toy with the problem and enable them to form their version of solution before giving an alternative explanation.
The question that was not asked by the author is – If what Big Box did was price gouging, would it be okay if someone picked up all the flashlights from the Home Depot and sold them right outside Big Box for a price just below twice the regular price Big Box was charging?
There is also the famous story of the pencil – how no one single person knows how to make a pencil. The core principle is how price and price alone serves as all the information that is needed to orchestrate the complex and distributed ecosystem that has no central authority and no other channels of information. I liked the version described in the book Free to Choose: A Personal Statement by Milton Friedman and Rose Friedman.
Price is Everything does not ask or explain why some are willing to pay $4 per pencil when Target and Walmart sell a box of two dozen pencils for 25 cents. What is missing is that while price alone serves as the signal, it is not something decided purely by supply and demand equilibrium. A marketer has control over the price they charge and improving customer willingness to pay.
The book also touches on several other economics topics like game theoretic thinking and choosing a dominating strategy.
Overall I recommend this book, even if the concepts are not new to you there is value in learning from Russell Roberts how to tell a good story and how to create teachable moments.