Price change ceiling

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 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.

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.