Price change ceiling: Difference between revisions
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Revision as of 18:49, 14 September 2016
Definition
A price change ceiling is an upper limit placed by a government or regulatory body with government sanction on the rate at which a price can be changed.
The most common example of a price change ceiling is rent control, where a cap is placed on the year-over-year growth in rent, although there is usually no absolute cap on the amount of the rent.
Justification
A key justification for price change ceilings is to address the phenomenon of lock-in: once people are locked in to a particular seller, switching costs are high. Price change ceilings are intended to prevenut sellers from exploiting buyers' difficulty of switching.