Price control

Examples of Price control in the following topics:

• Arguments for and Against Government Price Controls

  • Many argue that price controls ensure resource availability, but most economists agree that these controls should be used sparingly.
  • Well designed price controls can do three things.
  • Finally, when shortages occur, price controls can prevent producers from gouging their customers on price.
  • While price controls may appear to be a sound decision in theory, most economists believe these controls should be used sparingly.
  • Justify the use of price controls when certain conditions are met

• Other Inputs to Pricing Decisions

  • Price controls are governmental restrictions on the prices that can be charged for goods and services in a market.
  • There are two primary forms of price control, a price ceiling, the maximum price that can be charged, and a price floor, the minimum price that can be charged .
  • Historically, price controls have often been imposed as part of a larger income policy package also employing wage controls and other regulatory elements.
  • Although price controls are often used by governments, economists usually agree that price controls don't accomplish what they are intended to do and are generally to be avoided.
  • Price controls were also imposed in the US and Nazi Germany during WWII.

• Price Supports

  • Price supports are subsidies or price controls used by the government to artificially increase or decrease prices in the agriculture market.
  • Agricultural economics is a highly complicated market as a result of these price supports and controls, particularly from the perspective of subsidization and price control.
  • This chart shows how subsidies and price controls affect supply and demand.
  • This demonstrates a price control on behalf of the government.
  • Assess the way in which price controls affect supply, demand, and equilibrium pricing in agricultural economics.

• Price Ceilings

  • A price ceiling is a price control that limits how high a price can be charged for a good or service.
  • A price ceiling is a price control that limits the maximum price that can be charged for a product or service.
  • An example of a price ceiling is rent control.
  • Without rent control, there could be situations where the demand for housing in an area could cause rent prices to make a substantial jump.
  • Rent controls limit the possibility of tenant displacement by minimizing the amount by which rent can be increased.

• Price Floors

  • A binding price floor is a price control that limits how low a price can be charged for a product or service.
  • A price floor is a price control that limits how low a price can be charged for a product or service.
  • For a price floor to be effective, it must be greater than the free-market equilibrium price.
  • An example of a price floor is the federal minimum wage.
  • If a price floor is set above the equilibrium price, consumers will demand less and producers will supply more.

• Geographic Pricing

  • Uniform delivery pricing (also called postage stamp pricing): The same price is charged to all.
  • Zone pricing: Prices increase as shipping distances increase.
  • Critics contend that industry monopoly and the ability to control not only industry-owned "corporate" stations, but locally owned or franchise stations, make zone pricing into an excuse to raise gasoline prices virtually at will.
  • Oil industry representatives contend that while they set wholesale and dealer tank wagon prices, individual dealers are free to see whatever prices they wish and that this practice in itself causes widespread price variations outside industry control.
  • Zone pricing is also used to price fares in certain metro stations.

• Price Fixing

  • Price fixing is a collusion between competitors in order to raise prices of a good or service, at the expense of competitive pricing.
  • It is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand .
  • This includes exchanging prices with either the intent to fix prices or if the exchange affects the prices individual competitors set.
  • When the agreement to control price is sanctioned by a multilateral treaty or is entered by sovereign nations as opposed to individual firms, the cartel may be protected from lawsuits and criminal antitrust prosecution.
  • The brewers controlled 80% of the Dutch market, with Heineken claiming 50% and the two others 15% each.

• Settling the List Price

  • The manufacturer's suggested retail price (MSRP), list price or recommended retail price (RRP) of a product is the price which the manufacturer recommends to the retailer.
  • A good pricing strategy is one that strikes a balance between the price floor (the price below which the organization ends up in losses) and the price ceiling (the price beyond which the organization experiences a no demand situation).
  • The actual price tag can offer a wealth of information and opportunities to control inventory and provide supply chain data.
  • Some of the most common errors include; weak controls on the discounting process, inadequate systems for tracking competitor's selling pries and market share, cost-plus pricing, poorly executed price increases, worldwide price inconsistencies and paying sales representatives on dollar volume as opposed to addition of profitability measures.
  • Price Tags Include valuable information and can be used for Inventory Control

• Demand-Based Pricing

  • Price skimming is a pricing strategy where initially a product price is set very high, but lowered over time.
  • Value based pricing (aka value optimized pricing) sets prices primarily on the perceived or estimated value to the customer (rather than on the cost of the product, the market price, competitors' prices, or historical prices).
  • This process involves strategic control of inventory in order to sell items to the correct customer at the correct time.
  • These include: price skimming, price discrimination and yield management, price points, psychological pricing, bundle pricing, penetration pricing, price lining, value-based pricing, geo and premium pricing.
  • As a specific, inventory-focused means of revenue management, yield management involves strategic control of inventory to sell it to the right customer at the right time for the right price.

• Competitor-Based Pricing

  • Competition-based pricing describes a situation where a firm has a pricing policy that reflects the pricing decisions of competitors.
  • Competition-based pricing describes the situation where a firm does not have a pricing policy that relates to its product, but reflects the pricing decisions of competitors.
  • It can lead to price wars.
  • Price cannot be used as a variable when constructing a marketing mix; it becomes a constant over which the firm has no control.
  • Show the basis of competitor-based pricing as a general pricing strategy