22. Price Controls, Price Gouging, & Price Fixing

It is the government’s responsibility to create an economic environment where markets operate with a natural stability, automatically tending to balance fundamental supply and demand forces even when significant interferences or other destabilizing events occur. Given an economic climate structured in such an ideal way, disruptions which exceed the natural stabilizing abilities of the market are bound to occur from time to time, and when they do, temporary price controls can be a very useful tool. But price controls should be used only as a short-term patch to get the markets safely through the emergency. The use of price controls should trigger an immediate review of relevant market rules and regulations to determine if any need to be revised or debugged to prevent similar kinds of emergencies from happening again.

Price Controls

Therefore, as a rule, price controls (such as rent control, electricity price controls, etc.) should not exist. The only exceptions should be during times when markets shows sure signs of excessive instability causing rapid and extreme price fluctuations or which take prices to levels that cause immediate or impending damage to the economy or which may cause an extraordinary dislocation of significant numbers of people.

Price Gouging

Price controls should be used to enforce a cap on prices so that the price of any single product does not exceed 10 times its average pre-emergency price. For example, during an emergency such as a hurricane, earthquake, etc., a $1 gallon of water or a $10 sheet of plywood cannot exceed $10 and $100, respectively. Violations (i.e., price gouging) would be treated as theft of any amount in excess of this ’10-times’ limit.

Price Fixing

Price fixing should be allowed so long as the combined market share of all the companies, businesses, etc., involved in price fixing does not exceed a certain fraction (1/3rd, for example) in any given political jurisdiction in which price fixing is planned or occurring.

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