A price control is an artificial ceiling set upon a product that determines what the maximum price can be. In some cases, this may be done as a matter of consumer protection. In other cases, this may done as part of a concerted effort by a country with a centralized economy to control the market. Though national governments are often responsible for price control policies, local governments may also have some power to do so.
One of the most common settings for price controls is in the area of pharmaceuticals, especially for prescription drugs. Countries with nationalized health care systems, which are the majority of those in the world, will set price controls based on what they feel offers the company a chance to make a reasonable profit, but also protects consumers and the country itself. Without a price control policy in place, countries may find the cost of providing health care to be substantially more expensive than is desirable.
Government price controls may also be commonly seen in the area of lodging. On the back of most hotel doors in the United States, there will be a license saying what the maximum rate of the room can be. This is to offer the consumer protection when emergency situations may require an individual or family to seek temporary lodging. In most cases, the actual rate charged is less than that.
Countries with a centralized economy, such as communist countries, may regulate prices to a much greater extent. The country may determine the price of nearly all products. This may be done by setting prices by geographic region, or over the entire nation. Often, countries that do set these price controls may find they have to subsidize production so that companies can afford to produce the goods.
In the United States, the government has been less prone to introducing price control measures. In cases where it does, it is in response to a situation where retailers may be trying to take advantage of a nationwide scare. For example, after the terrorist attacks of Sept. 11, 2001, some gasoline stations raised the price of gasoline beyond what the market would normally allow. The government warned against such actions and even threatened to prosecute some station owners criminally.
In most cases, instead of government price control, the United States has implemented other policies that seek to influence prices. For example, the country's use of monetary policy will often affect the mortgage rate consumers will see on home loans. This allows private competition to have the ultimate say in the prices consumers pay, but also allows the government a little oversight in the matter.
