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Thomas Sowell writes the following in his book "Basic Economics":

If the prices of hotel rooms remain what they have been in normal times, those who happen to arrive at the hotels first will take all the rooms, and those who arrive later will either have to sleep outdoors, or in damaged homes that may offer little protection from the weather, or else leave the local area and thus leave their homes vulnerable to looters. But, if hotel prices rise sharply, people will have incentives to ration themselves. A couple with children, who might rent one hotel room for themselves and another for their children, when the prices are kept down to their normal level, will have incentives to rent just one room for the whole family when the rents are abnormally high—that is, when there is “price gouging.”

Are there any historical examples of price ceilings (often called "price gouging" laws) that have worked well in retrospective? That is, I'm looking for historical examples of price ceilings where:

  1. There wasn't a shortage of goods as a result of the law
  2. A significant black market did not appear as a response to the law
  3. The law was considered a success in retrospective by unbiased parties

There's plenty of examples of failed price gouging laws (such as Zimbabwe's failed attempt in 2007) but are there any successful ones?

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    I don't know about the rest of the book but the example you quote sets up an unrealistic situation and then suggests an unealistic outcome. First, if some natural disaster destroys a lot of homes, people just indiviually looking for alternative accomodation on the free market is not what usually happens. In general the government steps in and provides emergency shelter. Second, if some unusual situation creates a surge in demand and prices everyone rationing themselves a bit is not what usually happens. Rather the ones who can afford it behave as before and the others get nothing.
    – quarague
    May 29, 2023 at 18:05
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    Do fixed book prices count? They are generally considered a success in Germany and have not led to book shortages as far as I am aware.
    – Jan
    May 29, 2023 at 19:02
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    Very little of the answers & comments really seem responsive to the question. i wonder if that is because people are answering the question they want this to be, or if it is because the terms are insufficiently defined. I'm genuinely confused. "
    – MCW
    May 30, 2023 at 12:55
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    @MCW judging by comments under my answers, the terms "shortage" and "considered a success" seem to be problematic. E.g. is there a shortage if you have to wait ten minutes for your taxi.
    – Jan
    May 30, 2023 at 17:07
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    @JonathanReez the theory of Basic Economics only works in an actually free market that's completely free from government intervention. Thing is, modern "free" markets are far from being free, especially the drug markets which is filled with market manipulations enabled by patents abuse and mutual collusion due to extremely high barrier of entry. You need more than just the basics of economics to understand markets that aren't completely free.
    – Lie Ryan
    May 31, 2023 at 3:34

6 Answers 6

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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).

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    You forget (or ignore) the huge black market around rationing.
    – Jos
    May 31, 2023 at 2:43
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    "fairly well" - not perfectly.
    – Rich
    May 31, 2023 at 20:52
  • @Jos yes it was there but even with the black market it was massively better than the alternative
    – Hobbamok
    Jun 1, 2023 at 10:14
  • Accepting this answer as it's the only one that answers the spirit of my question. Jun 1, 2023 at 18:31
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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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    Does this refer to prescription drugs or over-the-counter drugs? For prescription drugs, isn't supply tightly controlled by doctors issuing prescriptions? So it's not like you can just go ahead and hoard a 5 year supply of diabetes medicine. May 30, 2023 at 13:54
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    I think you're acknowledging at the end that price controls at least distort the market such that customers in areas not subject to ceilings partially subsidize the costs of customers in markets with ceilings. I guess that can be viewed as success from the perspective of people benefiting from such subsidies, and that isn't one of the specific ill effects called out in the question, but I wouldn't characterize it as "working well" in a global sense. May 30, 2023 at 14:57
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    @JonathanReez Yes, demand for medicines is limited due to prescriptions, but that is not different from countries that do not have such price caps? And you can also not realistically hoard a five-year supply of bread or fresh vegetables.
    – Jan
    May 30, 2023 at 15:29
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    @Jan hoarding is just one side of the problem. The other problem is that producers will inevitably give up and leave the market if they can no longer make a profit at the capped price. Hoarding is often the last stage of a price ceiling disaster. May 30, 2023 at 15:33
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    @JonathanReez You write that a sign of failure is that "producers will inevitably give up and leave the market". This very clearly has not happened on any non-trivial scale so the measures are successful in that sense.
    – quarague
    May 31, 2023 at 8:14
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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.

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    @JonathanReez 1st question: No, as far as I know. But seriously I have never had a problem with finding a taxi in Germany. I noted serious problems in France last year though, despite Uber. 2. question: no idea, but probably not so much that every unbiased party would describe it as a shortage (note my explicit caveat re. social insurance however).
    – Jan
    May 30, 2023 at 16:48
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    nit: in many locations Uber (and similar services) are considered (part of) the "black market", because they're operating outside the otherwise regulated taxi industry. May 30, 2023 at 21:57
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    This also a good testing ground for hypothesis. Because both Finland and Sweden used to have the same system. But they have been dismantled since then. And it is generally accepted that the entire dismantling was a total clusterf**k. Although the system has stabilized to a WORSE system. So yes theres a bit more availability of taxis during peak hours. But off hours not so much and the prices did not go down they went up initially by quite much. And quite many people have stopped using taxis because of the system confusion.
    – joojaa
    May 31, 2023 at 4:56
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    @JonathanReez Your question was interesting, but your interactions with people in the comments make it feel like this question was completely made in bad faith. The average person's inability to correctly estimate the cost of running a business and getting tricked by advertising promising incredible profits is absolutely in no way proof that minimum wages shouldn't exist. Reminder: Minimum wages are about human decency, trying to force the market to not maximize for profits completely (or put differently, it sets the bounds within which we want to optimize). May 31, 2023 at 11:12
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    @JonathanReez - federal minimum wage? Many states/cities set their own minimums as well, especially where the cost of living may be higher. In many cases, though, the minimum wage is still a poverty wage. May 31, 2023 at 15:28
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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.

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    The vaccine is a unique good because it can only be consumed once or twice in a lifetime (the booster was a separate vaccine). Still, there were issues such as news.yahoo.com/…. I’m not fully sure about Canada but in the US it resulted in inefficient allocation of the vaccine where groups such as teachers were prioritized because their union had political power. May 30, 2023 at 6:55
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    I think you are confusing "price ceilings" and universal healthcare....
    – DevSolar
    May 30, 2023 at 13:11
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    I'm guessing in this example, the Canadian government or private insurance were the ones picking up the tab. If that's the case, vaccine producers and vendors did not receive $0 per dose. This is not an example of a price ceiling, but a price subsidy.
    – user14982
    May 30, 2023 at 14:39
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    it is not just a subsidy example, but a closed market with no competition. No one else besides a few companies had vaxxes approved by the government. Moreover, end users were forced to take the product. It is hard to think about an example farther away from a free market.
    – Luiz
    May 31, 2023 at 1:27
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    @JonathanReez Elderly people are not required to be around dozens of germy kids on a daily basis.
    – JimmyJames
    Jun 1, 2023 at 18:35
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EU price caps on natural gas seem to work reasonably well so far.

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    This directly contradicts the answer on a related Politics.SE question. May 30, 2023 at 15:38
  • Can you elaborate where exactly you see a contradiction? Are you implying there is no price cap? Or is it maybe something else?
    – Jan
    May 30, 2023 at 15:46
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    The contradiction is that many EU countries did let prices increase and those with the largest prices saw the largest reduction in consumption (which makes perfect sense). So I wouldn't call it a success. May 30, 2023 at 15:53
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    @JonathanReez it seems you are moving the goalposts here. Price ceilings does not mean that prices are fixed, or at least that is not what you wrote in your question. Also my answer is about the EU-level price cap introduced in December 2022, not about individual countries.
    – Jan
    May 30, 2023 at 15:58
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    @Jan the contradiction is that he's only here for self-validation (at best) or trolling (at worst). He's not interested in any actual counterexamples and dismisses any he can't "argue" against.
    – Hobbamok
    Jun 1, 2023 at 10:14
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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.

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  • Your assertion that creators will create even when not compensated is suspect. Can you provide evidence that the number of creative artists does not decline as they starve?
    – MCW
    Jun 1, 2023 at 23:04
  • @MCW I didn't mean to make that assertion. Perhaps you refer to my assertion that you can create additional copies of existing intellectual property for $0? I only ment to say that we can't experience a shortage of the song "Bohemian Rhapsody" for example. The first copy is expensive to make. Subsequent copies are free.
    – 9072997
    Jun 3, 2023 at 3:32
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    "you can't really have a shortage of intellectual property". Effectively the assertion is that intellectual property is a unique type of property that will be produced no matter The example you cite in your comment is illustrates a quite different principle. NOTE with emphasis; You've raised some very interesting implications, but I'm now guilty of discussion in comments. I invite you to have the last word. (pity, it would be an interesting discussion in an economics stack exchange. )
    – MCW
    Jun 3, 2023 at 14:36

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