Price ceiling
A price ceiling is a government- or group-imposed
While price ceilings are often imposed by governments, there are also price ceilings that are implemented by non-governmental organizations such as companies, such as the practice of
Examples
Rent control
Apartment price control in Finland
According to professors Niko Määttänen and Ari Hyytinen, price ceilings on Helsinki City Hitas apartments are highly inefficient economically. They cause queuing and discriminate against the handicapped, single parents, elderly, and others who are not able to queue for days. They cause inefficient allocation, as apartments are not bought by those willing to pay the most for them. Also, those who get an apartment are unwilling to leave it, even when their family or work situation changes, as they may not sell it at what they feel the market price should be. The inefficiencies increase apartment shortage and raise the market price of other apartments.[3]
"Coulter law" in Australian rules football
Uniform
During its early years, the Coulter law adversely affected only a minority of players, such as stars and players at wealthier clubs. Those individuals experienced, in effect, a drastic cut in wages. For instance, from 1931 the ceiling payment of £3 per game fell below the legal minimum
As a result of World War II, the wage for a regular game was halved (to £1 and 10 shillings) for the 1942–45 seasons. After the war, the ceilings were modified several times in line with
State Farm Insurance
On February 4, 2009, a
Venezuela
On January 10, 2006, a BBC article reported that since 2003,
On January 3, 2007, an International Herald Tribune article reported that Chávez's price ceilings were causing shortages of materials used in the construction industry.[12] According to an April 4, 2008, article from CBS News, Chávez ordered the nationalization of the cement industry, which had been exporting its products to receive higher prices outside the country.[13]
UK Default tariff energy price cap
The
Sugar in Pakistan
Another example is a paper by Sen et al.
Price ceilings that lead to higher prices
There is a substantial body of research showing that under some circumstances price ceilings can, paradoxically, lead to higher prices. The leading explanation is that price ceilings serve to coordinate collusion among suppliers who would otherwise compete on price. More precisely, firms forming a cartel becomes profitable by enabling nominally competing firms to act like a monopoly, limiting quantities and raising prices. However, forming a cartel is difficult because it is necessary to agree on quantities and prices, and because each firm will have an incentive to "cheat" by lowering prices to sell more than it agreed to. Antitrust laws make collusion even more difficult because of legal sanctions. Having a third party, such as a regulator, announce and enforce a maximum price level can make it easier for the firms to agree on a price and to monitor pricing. The regulatory price can be viewed as a focal point, which is natural for both parties to charge.
One research paper documenting the phenomenon is Knittel and Stangel,[16] which found that in the 1980s United States, states that fixed an interest rate ceiling of 18 percent had firms charging a rate only slightly below the ceiling. States without an interest rate ceiling had interest rates that were significantly lower. The authors did not find any difference in costs that could explain the result.
See also
- Black market
- General equilibrium
- Price floor
- Pricing
- Pricing science
- Pricing strategies
References
- )
- ^ Fetter, Daniel K. (16 September 2013). "The Home Front: Rent control and the rapid wartime increase in home ownership" (PDF). Yale University. Archived (PDF) from the original on 19 September 2015.
- ^ Onko Hitas-järjestelmässä mitään järkeä? Archived 2013-05-08 at the Wayback Machine, professor Niku Määttänen 16.4.2010 & professor Ari Hyytinen 17.4.2010, Akateeminen talousblogi (in Finnish)
- ^ Daly Anne and Akira Kawaguchi; Competitive Balance in Australian and Japanese Sport Archived 2007-09-28 at the Wayback Machine
- ^ Booth, Ross; Comparing Competitive Balance in Australian Sports Leagues, The AFL, NBL and NRL: Does The AFL's Team Salary Cap and Player Draft Measure Up?; p. 30 Archived 2009-10-05 at the Wayback Machine
- ^ "The Australian minimum wage from 1906". 12 July 2019.
- ISBN 1-86337-085-4
- ^ Florida's Unnatural Disaster Archived 2017-08-12 at the Wayback Machine, Wall St. Journal, February 4, 2009
- ^ Venezuelan shoppers face food shortages Archived 2014-05-21 at the Wayback Machine, BBC, January 10, 2006
- ^ Venezuelan troops crack down on border smuggling[permanent dead link], Associated Press, January 22, 2008
- ^ Chavez Seizes Venezuelan Rice Plants, Associated Press, February 28, 2009
- ^ Venezuelan businesses say Chávez's price controls create shortages Archived 2009-02-28 at the Wayback Machine International Heralrd Tribune, January 3, 2007
- ^ Hugo Chavez Nationalizes Cement Industry, CBS News, April 4, 2008.
- ^ Milligan, Brian (4 October 2017). "Theresa May revives plan to cap energy prices". BBC News. Retrieved 21 October 2020.
- ^ A Sen, A Clemente, and L Jonker ‘Retail Gasoline Price Ceilings and Regulatory Capture: Evidence from Canada’ (2011) 13(2) American Law and Economics Review 532–64.
- ^ RK Knittel and V Stango ‘Price Ceilings as Focal points for Tacit Collusion: Evidence from Credit Cards’ (2003) 93 American Economic Review 1703–29.
Further reading
- Rockoff, Hugh (2008). "Price Controls". In OCLC 237794267.