I’m a huge sci-fi nerd. I’m also a huge fan of the Mass Effect series. As I near the completion of my fifth play-through of the trilogy, there are a number of economic lessons taught in the series. To tease these lessons out, I’m starting a new series of posts on this blog. I will do my best to avoid spoilers, but I cannot guarantee anything. If you’re hoping to avoid spoilers, I’d suggest holding off on reading this until you play the game (but seriously, the series is eight years old at this point. Where have you been?). I hope you’ll enjoy this as much as I do writing it.
Profiteering, or the art of charging higher prices during a natural disaster or war, is treated as a dirty thing. In fact, many states and countries have made it illegal. Unfortunately, the myth that profiteers are nothing more than greedy individuals trying to capitalize on distress is very common. In Mass Effect 3, this pops up right near the beginning of the game. Some background: the galaxy is invaded by a super powerful race of sentient machine-organic hybrids known as the Reapers. All major civilizations (Humans, Turians, Asari, and Salarians) are under attack. Within hours of the invasion, the Human government is dead, Earth is under attack, galactic communications are in disarray (meaning inter-planetary trade is very difficult to conduct), and normal travel lanes are raided by mercenaries and the Reapers.
Early on in the game, the player (Commander Shepard) is on the Citadel (the home of the galactic capital) and he runs into an old friend, Dr. Chole Michel. While discussing the situation on the Citadel, Dr. Michel notes that “war profiteering has already begun,” making it hard for the hospital to get the medication it needs. Commander Shepard just shakes his head in disbelief.
Undoubtedly, the price of medication has risen for the hospital, but does that mean it is due to greediness? Hardly. Re-read my second paragraph: the galaxy is in chaos. Supply chains are disrupted. A war is on. Demand is high and supply is low. A simple supply-demand analysis would suggest prices will rise. Traders and manufacturers are incurring extra risks and need to protect shipments from raiders. Manufacturers have longer supply chains, increasing their costs. Raw material miners need to travel further and further to get their inputs. All these things raise the price of goods.
The higher prices also encourage substitutes and technological advances, such as ways to make the current supply of medication more effective (in fact, this is a side quest the player can undertake). In addition, consumes of the medication will look for alternatives as well, and those who value the medication for less than the market price can sell their stocks (this example also appears in-game and we will discuss it in a future post).
Far from profiteering being a drag, it is actually a good thing when resources are exceptionally scarce. If the Council (the ruling body of the Citadel) were to enact legislation against profiteering , this would have a detrimental effect on the supply of goods; prices will be unable to rise, and there will be less incentive for manufacturers to produce, less incentive for consumers to ration, and under-supply will continue to be a problem.