Price control

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Definition

A price control is a restriction or set of restrictions that a regulatory body (usually governmental) imposes by fiat on a particular good or service (or on a particular seller of a good or service). There are two main kinds of price controls:

  • Price ceiling or maximum price: This is a maximum value for the unit price of the good. A price ceiling that is above the market price is termed a non-binding price ceiling and a price ceiling that is below the market price is termed a binding price ceiling.
  • Price floor or minimum price: This is a minimum value for the unit price of the good. A price floor that is below the market price is termed a non-binding price floor and a price floor that is above the market price is termed a binding price floor.

In addition to price ceilings and price floors, there can be other, more complicated types of price controls. These include:

  • Linking prices of multiple items: Without specifying a maximum or minimum price, a regulatory body may require that sellers charge the same price, or charge prices in a fixed or bounded proportion, for two different items being sold. For instance, a regulation may require sellers to charge the same price for skimmed milk and full fat milk.
  • Restrictions on price dispersion and price discrimination: Sellers may be required to charge the same price to all customers, and may be forbidden from price discrimination. For instance, a supermarket chain may be required to charge the same price for milk in all its stores, despite the different costs of operation of the stores.
  • Restrictions on price change rates: Sellers may be required to keep their prices constant or limit the rate at which they change their prices with time. Some forms of rent control are of this type.