Are there any historical examples of successful price ceilings (aka price gouging laws)?

score:12

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WW2 had price controls in the US and UK, combined with rationing, and these held up fairly well:

https://en.wikipedia.org/wiki/Office_of_Price_Administration https://en.wikipedia.org/wiki/Rationing_in_the_United_Kingdom

It's arguable that rationing (or shortages) is required along with price controls. Shortage can be viewed as another form of inflation (for instance before the recent rise in inflation, there were shortages in goods and services - construction being one affected area - in many countries).

Upvote:1

It is not exactly historical since it is still in effect, but compulsory licenses for music in the US functionally caps the royalties for sheet music at $0.08 (there is a long list of caveats to that; for example it only applies to songs under 5 minutes in length and doesn't apply if you record video of your performance). You are free to negotiate a lower price with the rights holder of course, and this does happen, but since you always have the option of the $0.08 license there isn't much a rights holder can do to convince you to pay more.

This has definitely not lead to any shortages or black markets, since you can't really have a shortage of intellectual property. The cost of producing an additional copy is always $0.

I think this is pretty clearly a price cap, though I don't think I would call this a price gouging law. In general I think it is interesting to apply economic principals to intellectual property since the supply curve is so different from what I learned about in basic economics classes.

Upvote:5

EU price caps on natural gas seem to work reasonably well so far.

Upvote:10

In recent history, Canada introduced and enforced a price ceiling of $0 for the various COVID-19 vaccines as they became available. It was not legal to charge more than $0 for the vaccine, and it was not legal to purchase the vaccine for more than $0.

As far as I can recall, there were not widespread shortages of this good in Canada. There may have been in other parts of the world, but I'm not sure how much of that can be blamed on the Canadian price ceiling.

As far as I know, there wasn't a significant black market.

Was it considered successful? Maybe. I'm not sure if enough time has passed for anyone to be an unbiased party yet.

Quasi-relatedly, a similar $0 price ceiling was introduced (at least in Alberta, a part of Canada) for home COVID tests. I think there may have been the occasional transient shortage with those, and at least some nascent attempt to set up an illicit market, but it all seemed pretty subdued.

Upvote:13

Taxi prices in Germany are set by local governments, and I think consensus is that this has been successful so far.


Prices for some other services (such as lawyers and architects) are also regulated, though the most well-known and most strict regulation is the price regulation for medical services.

This particular regulation has existed for about 125 years, so we may conclude that it has been considered successful. I am also not aware of any black market or shortages - quite the opposite: if you offer to pay according to said price regulation (as opposed to letting social insurance handle the payment), doctors are supposedly quite happy and quick to offer you an appointment.

Upvote:20

In Czech Republic (and AFAIK most of Europe), almost all medical drugs have had tightly controlled prices for the last couple decades. This price control in some senses does and in others does not fit your requirements:

  1. Shortages. Among the thousands of regulated items, at any given time there is almost always a shortage of a handful of items. On the other hand, you could almost certainly find many drugs that never experienced a shortage. Also the causal relation between the price control and shortages is difficult to establish as Czechia is a small market and most of the shortages (e.g. due to one of only two plants for the drug in the whole world closing down) affect the whole European region or the whole world.
  2. Black market. Similarly, at any given point there are quite likely some drugs that have black markets. This AFAIK most typically mean pharmacies illegaly re-exporting drugs to sell at higher prices. Actual consuments/patients buying medicine on black markets is AFAIK very rare. Many other drugs are not affected.
  3. The experience for most of the population is that you almost always can obtain drugs you need at OK-ish prices (many 100% covered by health insurance). There are IMHO very few countries where the patient experience is better and the contrast is especially stark with the US. But hey this is biased towards the interests of patients, I'd bet pharma companies are not so thrilled, so not sure if that counts :-D

So if you focused narrowly enough on some specific set of drugs, you could almost certainly find those that satisfy your requirements. The system as a whole experiences some problems and pressures and is definitely not perfect, but I have yet to see a better solution.

There are also concerns that the price controls may disincentivise innovation. I don't think this has been very clearly established (the system is willing to pay huge money for some therapies) and anyway, as long as US patients are OK with footing the bill for a lot of pharma research, I don't see why we in less prosperous countries shouldn't accept their generous offer.

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