Following an ice storm in southwest Missouri this past winter, an agency of the Missouri Attorney General’s office collected more than eight million dollars from several area businesses, including two motels, as penalties and restitution for ‘price gouging’.
Let me tell you about a pair of motels in another state: North Carolina. As a native of that state in a southeastern coastal location that hurricanes have a fondness for, with ten years hotel management experience, I’ve worked at several motels there.
First, a few notes about how motels work.
A motel room differs from a widget that appears on a store shelf in that it is a perishable commodity. You don’t put a price tag on it and expect us all to agree that it has a tangible value. It’s not a dollar coin. It’s not a 20oz soda at the convenience store that we can agree is worth $1.39, more or less.
Even where the product is exactly the same, the price can vary. A room in a Hampton Inn in Bethlehem, Pennsylvania has an asking price of $159.00. The same room at a Hampton Inn in Santee, South Carolina, has an asking price of $98.00. Rooms at a Hampton Inn come pretty much one way, wherever you go. The difference lies in where they are, in how many people want to go to Bethlehem, and in how fewer people want to go to Santee.
Room rates float. They have to. If a night passes without a room rented, that room is worthless that night, despite the owner’s investment in the hotel. But if demand is high, the law of supply and demand does its power and magic. I’m not going to charge people who are willing to pay eighty bucks only forty. Nor am I going to lose customers if I have a lot of empty rooms by trying to charge more than they’re willing to pay, provided they can cover my cost. If you come to the 44-room motel I now run and need a room, and it’s a busy weekend, and I only have one or two left; be prepared to spend upward of a hundred dollars, and it won’t be one of our better rooms. If we’re slow on a weeknight and I have lots of empty rooms, I might give you a better room for closer to fifty bucks.
So, if a motel is ‘price gouging’, how would you know?
Of course, the asking price is going to be 11% more — we know you’re going to ask for AAA, or AARP, or the ‘corporate’ rate if you have a job, or the ‘government’ rate if you don’t have a job and are on welfare: it’s the nature of the business. Everyone gets a ten percent discount, this is America, everyone has entitlements. It’s like ants at a picnic. Everyone has to feel they’re paying less than the guy in the next room.
Now, let’s move on to my story about two North Carolina motels.
In 1994, I began a ten-year tenure with a company that owned a group of motels scattered about the Carolinas and Ohio, in a motel in Greenville, North Carolina. Greenville is the largest city in North Carolina east of Raleigh and is geographically in just the right position so that, any time a brisk summer breeze blows into the Outer Banks in the late winter or early spring (a ‘nor’easter’) or in the late summer or early fall (a tropical storm or hurricane), it gets flooded with people fleeing the beaches. They quickly tie up every motel room in town.
And of course, they scream bloody hell about the high rates many of them end up paying for the room.
Not long after I left that fair city in the dust, Greenville passed an ordinance against increasing the cost of motel rooms in reaction to a storm warning on the Outer Banks.
So far as I know, no one has yet been charged in Greenville for violating it. But it needs violating. What price would the city of Greenville like to set for the room? If the owner fixes a price for a room, that is of course his right, but only the most mindless owner is going to insist on that fixed price in the face of empty rooms, and hold to it — leaving money on the table, so to speak — when demand is high. Of course, if he’s flexible, there isn’t much of a set price. But the city stands ready to do battle on behalf of ‘refugees’ from stormy weather fleeing the Outer Banks.
Our rates (and remember, this was years ago) were generally $34.95 to $45.95 a night, although we could go as high as $79.95 if demand was high — or as low as $25.95 if things were slow. So, good luck busting us. The high rates would be based on demand, period. That demand could just as well be generated by East Carolina University’s graduation, homecoming, or a busy football weekend as it could be generated by an Act of God on the Outer Banks. Demand was demand.
But anytime there was a blow on the Outer Banks, we’d be accused of price gouging, if the residents of the beaches didn’t get a room for some arbitrarily low rate that they’d expect to pay at a Motel 6 in a city of fifty thousand on a calm, spring night. And only a bunch of greedy lowlifes would take advantage of people whose lives are at stake.
Let’s take a look at another motel a hundred miles away and a few years later, in Benson, North Carolina, best known as the place where I-95 and I-40 intersect. The rates there were low even though this wasn’t an economy brand: $40 per night and we had lots of empty rooms. If you’ve ever traveled up and down I-95 in North Carolina (”halfway between New York and Florida”), you’ve seen it or a hundred motels like it. We call them ‘road whores’. They live and die by I-95 traffic. They have no other demand generators, other than local couples looking for some place to consummate a date. Their billboards read something like “$23.95 PER NIGHT”, but at the 70mph speed that prevails on I-95, you don’t slow down enough to read the smaller type on that billboard that says “Tuesday through Thursday only, senior citizen rate, single occupancy, second floor” (like senior citizens ever time their arrival for the middle of the week, like they ever travel alone instead of in pairs or larger groups, or like they can be forced with a sawed-off shotgun to climb a flight of stairs). The real rate, of course, is going to be somewhat higher.
I was the assistant manager at one of those motels. The year was 1996. The end of August was approaching.
The big event: Hurricane Fran.
The storm would damage 90% of the structures in North Topsail Island and in Carteret County, where I grew up, each of which would be swept by its northeastern quadrant, the most damaging part of any hurricane. Cape Fear and Wilmington, North Carolina, would take a direct hit.
But for now, all we had was a hurricane watch. And the general manager, well-meaning but misguided, was determined to do the ‘right’ thing. He told us not to increase the prices beyond $60.00. We quickly filled the motel with travelers on I-95 looking for a place to ride out the storm, and elderly local residents who lived in older, frame houses that were vulnerable to damage.
We sold the last of the rooms just as the first of the ‘refugees’ arrived: residents of Wilmington and Carolina Beach who came inland, straight up I-40, to avoid the storm — and who were willing to pay nearly any price, or commit any act, to get a motel room. We had already hung a ‘no vacancy’ sign — and were continually harassed all night by people who wouldn’t take ‘no vacancy’ for an answer. (”No, we don’t know who has any rooms. Every motel we know of is full . . .”)
Fortunately, around eleven, it stopped. Unfortunately, it stopped for a reason. We were directly in the storm’s path.
We got hit at about midnight.
At about 1:00 a.m., after a little over an hour of hearing the plate glass rattle, the 100 m.p.h. wind whistling in three hundred and sixty directions, and pelting rain blowing sideways, Benson police in blowing rain gear were pounding on the door.
“You have to evacuate. You’re losing your roof”
I and the relief night auditor got a little wet and had to dodge some debris, but in about a half-hour, we’d roused about 200 guests from their beds and had them huddled in the lobby. Fortunately, the winds died down about an hour later. If that rattling plate glass had broken, the shards would have caused several nasty injuries among the people sitting there wrapped in blankets.
Several people whose rooms were too leaky to occupy checked out and left in the morning. The vinyl roof over that part of the building had become detached and had folded back, but was no longer blowing.Those rooms were blocked off. The remaining rooms were, but for the power being out, still serviceable and the remaining guests returned to their rooms.
And then, the refugees showed up again — this time in larger numbers that included people who had stayed in the Wilmington area, only to have their homes damaged as they tried to ride out the storm in them.
We couldn’t accommodate them, at any price, regardless of what they were willing to pay. Most of the people we had were stuck there: they literally had no place to go. We were still dealing with damage from the storm and had not had time to properly assess that and determine which rooms could be safely occupied. The power was still out. The water was working only in one wing of the building. The general manager posted a notice that no one could be checked in prior to 3:00 p.m.
No matter. We were going to do the impossible.
We were constantly badgered by people who came to the desk to check in — and who, after being told they couldn’t, returned several minutes after wandering the property, to argue, “Room number such and such doesn’t have anyone in it”. Amazingly, the phones still worked: we got constant complaints about people peeping in windows or trying to stick their heads into any door that cracked open. An elderly couple approached the desk literally in tears — someone representing themselves to be employees of the hotel that told them, very rudely, that they had to check out, and they had nowhere else to go. All of our staff present were accounted for.
One yuppie type came to the desk and demanded to be checked in. We told him, not until 3 p.m. He demanded to make a reservation. We told him we weren’t taking reservations. He demanded to be put on a waiting list. We told him we weren’t keeping a waiting list. He argued. “Hurricane rules!”, he cited. We told him we already had our rules to go by, and we’d be sticking to them. He became loud, threatening and abusive. We asked him to leave. He refused. We called the police. They arrived and told him to leave — but had more pressing matters to attend to than to stick around to make sure he left and stayed gone. Less than five minutes later, he was back, demanding my name. He would have been killed or seriously injured at that point if the manager and relief auditor hadn’t grabbed me — but their fighting to restrain me and my wriggling to get loose and go at him had its desired effect: the yup finally got it through his dumb head that it was time to leave. It was the one time in a more than ten year career in motel management that I’d ever had occasion to raise my hand to a customer, no matter how obstreperous or obnoxious.
The place, simply put, was nothing more or less than chaos. Despite the low, ‘regular’ rate they got, no one got their money’s worth. We’d have been better off to close the property for those two nights. (The power remained out until the next day.)
Did we get any appreciation? No. We got demands for refunds. We got blamed for the storm. We got blamed for the building not holding together through the storm.
And of course, we got accused of price gouging. It wasn’t the first time we had the demand to charge sixty, even eighty, bucks for a room. But even people who ought to have known better were pointing out — so many of these motels were advertising rooms at $23.95. (Remember those I-95 ‘road whores’ and their billboards?) Here we were, charging sixty bucks — over twice that much — for rooms for people trying to get out of harm’s way.
Of course, some other hotels were charging a hundred dollars more. We, however, added to the chaos and disorder by offering $60.00 rooms in a $150.00 market. It was like standing on a street corner in a neighborhood full of desperately poor or hungry people and giving hundred dollar bills away. Once your 120 hundred dollar bills are gone, what do you tell the rest of the crowd that’s gathered, many of whom feel slighted because they didn’t get one? What do you tell the bear when you’re out of cookies?
Would these people nearly as likely have been peeping in windows or bullying little old ladies if they’d known that, if they got a room, they’d pay $175 for it instead of $60? Probably not. If anything, they’d have moved along elsewhere looking for something cheaper. But we’d deprived them of a mutually gratifying — and much more civilized — way to express high demand for a short supply. What do you use as a medium of exchange when there’s only one of something, it’s free, and ten to twenty people not only want it but feel they’re entitled to it? A free-for-all brawl with the winner taking it?
Never again. Not on my watch.
Anything that floats, floats because it has buoyancy. Let its natural buoyancy do its thing.
Property Rights, Free Trade, and Laissez-faire Capitalism 101: No matter what the situation, no matter what the source of the demand, you have no more right to require that I sell you a room for $60 that others are willing to pay $100 for, than I have to require you to rent that room for $60 whether you need it or not on a slow night when I have empty rooms and no takers at $40 per room.
If you want the room, pay a mutually agreeable price. If you cannot agree on a price, get back in the car, move it along, and find a property that has rooms to rent at a price you are willing to pay.
Oh, you tell me there’s a storm or some other natural disaster? Your life is in danger?
No — and who are you trying to kid? Your life is not in danger. If it were, you wouldn’t be there. You’d get back in the car, keep moving, get out of harm’s way, and find a place where you feel you are safe from danger. Only then would you start shopping around for a motel room.
And it wouldn’t matter if it were. Nor does it matter if you can’t pay the increased price. Nor does it matter if you have a child. Nor do any of a hundred other knee-jerk emotional rationalizations matter. Your need doesn’t constitute a claim. Hotels and motels are privately owned businesses. If money’s a problem, go to a shelter.
The really galling thing about these would-be customers, in both these localities? They’re from coastal resort areas. Carolina Beach and North Topsail are beach resort boom towns.
And at least once, you’ve seen that round souvenir sticker on the back of a car that reads ‘OBX’, for Outer Banks: I think it was invented there. Try to get a meal on the Outer Banks during summer tourist season without paying something in the double digits. You can, but only if you eat at McDonald’s or the Kitty Hawk Wal-Mart. For that matter, those are the only places you can count on eating for less than ten bucks in the wintertime, too — everything else is closed. Tourism is a very seasonal business.
And hotel rooms? Plan on three hundred a night for a crummy room during a summer weekend. Of course, you can get a really nice oceanfront room for fifty bucks — in February, if the hotel is open.
These very people who were giving us all the grief and aggravation know the law of supply and demand. They live and die by it. On the Outer Banks, there is no economy other than tourism. And it’s all a “clean out the ‘yankeeturrists’ pockets” game. Does anyone really believe it costs an extra twenty-five to fifty cents a gallon to truck gasoline over the Wright Memorial Bridge? If you do, my ex-girlfriend the real estate broker has this neat dual-span bridge between Currituck and Kitty Hawk we’d like you to look at. (We’ll even throw in a couple toll booths . . .)
But with hurricanes, it’s different! Their lives are in danger! Take off. Get lost. Go to Jersey. One, we’ve already covered that: if your life is in danger where you are, the last thing you’re going to be thinking is to rent a motel room right where you are. Two, these are people who scream bloody hell if a hurricane warning is posted for an early season storm because there’s still a chance that the storm might not actually hit, but the warning will scare away the tourists — and their tourism dollars. They don’t mind exposing the lives of others to real danger if the money’s right: just don’t subject them to imagined peril.
Let’s get real. Cut out the hypocrisy. Supply and demand — it’s called a law for some reason. You don’t expect government to protect you from the law of gravity, even if you’re the one who falls down and goes boom.
The 50-room Super 8 Motel in Springfield, Missouri was ordered to pay $8,504 in restitution (in addition to $7,495 in other penalties) for charging customers ‘as much as’ $40 per room following an ice storm. As of today (Saturday, May 19) they have an advertised rate of $54.99. A $40 float for high demand is not unreasonable. But do the math. It doesn’t add. At $40 per room, it only comes out to $2000 in ‘overcharges’. The ‘restitution’ actually paid comes out to $149.99 per room: either the guests affected were there for three to four days, or someone decided that they were entitled to some free rooms. A Days Inn in Joplin, Missouri had to pay, in addition to $5,500 in other penalties, $7,373 in restitution after it was alleged to have ’substantially’ increased the price of its rooms. At 106 rooms, this ’substantial’ increase works out to $69.55 per room: perhaps a little aggressive for a property that today advertises its rooms for $54.99 as well, but I’ve paid well in excess of $124.54 on a few occasions when I’ve needed one and that was the price. In the event of an ice storm in the area, I wouldn’t expect them to go for less. Don’t come crying to me.
Just who, if not the owner of the property, is entitled to set the room rates, anyway?
There’s another fundamental law we have to deal with, here: property rights. There’s no such thing as a free lunch. You have to pay for what you get. The price is the price.
Take it or leave it.
