Price change ceiling: Difference between revisions

Revision as of 18:52, 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. It is a variant on the concept of a price ceiling.

Examples

The most common and widely used example of a price change ceiling is rent control, where a cap is placed on the year-over-year growth in rent for a given rental agreement between a buyer and a seller, although there is usually no absolute cap on the amount of the rent.
Some stock markets have ceilings on how much the price of a stock can change in a given day, in order to reduce rapid variation in prices.
Price change ceilings may be imposed to prevent price gouging during emergencies.

Justification

The following are typical reasons for price change ceilings:

Reduce the incidence of sellers exploiting buyers through lock-in.
Reduce volatility and increase predictability in the market.
Address potential problems of price gouging.

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 == 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.
+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. It is a variant on the concept of a [[price ceiling]].
-The most common and widely used example of a price change ceiling is [[rent control]], where a cap is placed on the year-over-year growth in rent for a given rental agreement between a buyer and a seller, although there is usually no absolute cap on the amount of the rent.
+== Examples ==
+* The most common and widely used example of a price change ceiling is [[rent control]], where a cap is placed on the year-over-year growth in rent for a given rental agreement between a buyer and a seller, although there is usually no absolute cap on the amount of the rent.
+* Some stock markets have ceilings on how much the price of a stock can change in a given day, in order to reduce rapid variation in prices.
+* Price change ceilings may be imposed to prevent [[price gouging]] during emergencies.
 == 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.
+The following are typical reasons for price change ceilings:
+* Reduce the incidence of sellers exploiting buyers through lock-in.
+* Reduce volatility and increase predictability in the market.
+* Address potential problems of [[price gouging]].