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What is Price Control?

By Ken Black
Updated Jan 27, 2024
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A price control is an artificial ceiling set upon a product that determines what the maximum price can be. In some cases, this may be done as a matter of consumer protection. In other cases, this may done as part of a concerted effort by a country with a centralized economy to control the market. Though national governments are often responsible for price control policies, local governments may also have some power to do so.

One of the most common settings for price controls is in the area of pharmaceuticals, especially for prescription drugs. Countries with nationalized health care systems, which are the majority of those in the world, will set price controls based on what they feel offers the company a chance to make a reasonable profit, but also protects consumers and the country itself. Without a price control policy in place, countries may find the cost of providing health care to be substantially more expensive than is desirable.

Government price controls may also be commonly seen in the area of lodging. On the back of most hotel doors in the United States, there will be a license saying what the maximum rate of the room can be. This is to offer the consumer protection when emergency situations may require an individual or family to seek temporary lodging. In most cases, the actual rate charged is less than that.

Countries with a centralized economy, such as communist countries, may regulate prices to a much greater extent. The country may determine the price of nearly all products. This may be done by setting prices by geographic region, or over the entire nation. Often, countries that do set these price controls may find they have to subsidize production so that companies can afford to produce the goods.

In the United States, the government has been less prone to introducing price control measures. In cases where it does, it is in response to a situation where retailers may be trying to take advantage of a nationwide scare. For example, after the terrorist attacks of Sept. 11, 2001, some gasoline stations raised the price of gasoline beyond what the market would normally allow. The government warned against such actions and even threatened to prosecute some station owners criminally.

In most cases, instead of government price control, the United States has implemented other policies that seek to influence prices. For example, the country's use of monetary policy will often affect the mortgage rate consumers will see on home loans. This allows private competition to have the ultimate say in the prices consumers pay, but also allows the government a little oversight in the matter.

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Discussion Comments
By anon278067 — On Jul 04, 2012

That's true. In the absence of a price control policy on commodities, the consumers can suffer.

By letshearit — On May 14, 2011

There have been a few times in history when democratic countries have introduced price control to help with run away inflation. It is always controversial and often a last ditch effort to keep things from getting really bad.

I believe that price control should only be used under extreme circumstances such as economic crashes, war and disasters. Having price control all the time would damage the free market. Not only that, I believe that businesses would stop producing as many goods and the job losses would be huge.

What do you think would happen if we allowed price controls on most of our products? Do you think price control is a good idea, and if so, when?

By wander — On May 12, 2011

I believe that price control can be beneficial to consumers and that governments need to take more control of goods that are necessities and invaluable to our survival.

Things like the prices of water, food, utility costs and fuel should all be permanently capped and regulated.

While some may argue this is too much like communism, and feel that the free market should decide prices, but I feel the free market takes advantage of consumers.

There should be regulations in place that allow businesses to make a profit, without gouging citizens.

This is especially true in times of disaster. It is disgusting to see that stores raise their prices when people are scared and attempting to provide for their families.

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