Question

Some retailers, including Walmart and Amazon, are limiting the purchases of some items they sell and “…penalizing online sellers for price gouging.” Why would retailers limit the quantity of an item that consumers are allowed to buy, rather than sell the items to consumers at higher prices they are willing to pay? In your answer explain what a market-clearing price is.

Please point out any graphs or cite any references to substantiate your points as needed

Answer 1

During the current times of COVID-19, online retailers like Amazon and Walmart are limiting purchases of items they sell, in order to prevent consumers from hoarding essential products and then resell them in black markets. Another aspect is from the social welfare point of view, where in the retailers are making sure some of each good is provided to each buyer instead of most of one good to a single buyer.

The purpose here is to maximize sales and consumer reach rather than maximizing profits through illegal means.