Price change ceiling

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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. 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.