Intervention of Government in Price Control May, 2014 | Page 2

Government’s Interventions in Price Control
Price controls are the government’s attempts to fix prices for commodities and services
so that the prices of certain products would not go too high or too low. This would
prevent all sorts of problems concerned with monopolies and price cartels.
Maximum prices are set with the intention of preventing inflation, whereas, the
minimum prices or the price floors are set in order to prevent Deflation. Price floors
would also prevent many fraudulent activities that are concerned with transactions
conducted on very low or high costs.
It has long been argued if the government should or should not intervene in the setting
of prices of domestic and non-domestic products. Meanwhile, the concepts of pure
capitalization believe that the prices should not be regulated and/or set by the
government and should rather be left for the buyers and sellers to decide. Considering
the competition, the capitalist economists argue that the prices would themselves
regulate at a low and manageable price. What the capitalists failed to consider was the
concept of Cartels and the fact that if the prices are not set, the seller getting the lowest
cost would be the only one to survive among many market players. As only those players
who have a specialization and are getting lower and competitive rates from their own
suppliers would be able to sell their products at a lower price and therefore, they would
be the only ones to continue to exist. However, cartels and monopolies can pose a very
harmful threat to the market by introducing the price of their choice.
On the other hand if we consider the aspect where the government does set prices and
costs, there is then, no reason to compete in the market. Even if an organization
improves its products and services, does the best marketing possible and provides aftersales service, it can still not raise its prices, therefore, eliminating the need to be
competitive in the market.
The market always tries to attain equilibrium price level in which both, the quantity
demanded and the quantity supplied, are balanced. This does not satisfy the buyer and
the seller, because the buyer wants to pay less than what is trending. Meanwhile, the
seller would always try to get the best for the product/service. Thus, there is an
increased requirement for the government to interfere and set the price ceilings and
price floors.

1