# Tag Info

17

Rent control will over time decrease the supply of housing while increasing demand causing a housing shortage. Moreover, there are also studies that show that under rent control there are not just shortages of houses but also misallocation, that is the houses are no longer allocated to people who have highest utility/consumer surplus from having them (...

13

Kling's maxim: Price Discrimination Explains Everything Who are the sorts of people that purchase at Barnes & Noble? Less price elastic buyers, like those that are purchasing a gift, those less comfortable with buying online, those that value in store recommendations and assistance, and those that just like the in store experience. Barnes & Noble ...

10

This answer is based on Mowzer's comments. Property development companies will not invest in existing apartments in Berlin, because they can achieve a higher return in other cities. Property development companies will not invest in new apartments in Berlin, because they think the city government will apply rent control to new apartments - something they ...

8

As someone asked in a comment why would this lead fewer new houses being built; the logic of the developers is rather simple, e.g.: Deutsche Wohnen CFO Philip Grosse said in an interview with Bloomberg that the firm is holding off on construction in Berlin, and instead will look to other cities to make new investments. The company said earlier this month ...

6

A property tax: In the short run, a property tax will have no effect on rent, as the supply of homes is fixed (i.e., supply is totally inelastic in the short run), and demand is relatively inelastic but not completely so, so the incidence will fall on property owners. In the long run, a property tax will increase rental costs because supply of new units (i....

5

What are volatility swaps? Before the introduction of what is now volatility swaps, investors gained exposure to the market's volatility (yes, they already wanted to) through call and put options, products that depend on volatility, but also heavily on the price level of the underlying asset. A volatility swap is a forward contract on future realized price ...

5

West Berlin had a very restrictive rent control policy in effect until 1988. The result was an exceptionally low price level of rental apartments, while modernization was decades behind other cities. That benefited students, artists and musicians who created a unique cultural scene. In 2003, the city was still "poor but sexy", as mayor Wowereit famously said....

5

Disclaimer: this answer was significantly rewritten to spell out explicitly how it answers OPs question and to add some sources (thanks to @Fizz). The gist remains the same. The only case I know where housing policy seems to work the way you envision is Vienna (the Austrien capital). They use a combination of several of the policies on OPs list, they have ...

5

I've never heard of this before so I have no idea if this works well. However, In some sense I think the concept is quite interesting. Let $B$ be the amount of rice in the pool and $A$ the amount of dollars. Let me write the price for 1kg of rice as a function of $A$ and $B$. $$p = f(A,B) \tag{1}$$ For this to work, we need $f$ to be increasing in $A$ (the ...

4

Answer above assumes every buyer gets the same price on a given product. Amazon doesn't work that way. You price check over time, and Amazon isn't stable. Hard to do that in a store. Amazon also knows when I go back to buy and many products have a higher price when I return. If I don't buy at that higher price, it magically drops a week later. And I get an ...

4

I agree with @Alecos Papadopoulos that this is probably a marketing/product differentiation trick. You attract a specific type of consumers with a specific mindset. Another theoretical explanation also exists: This could be a version of second degree price discrimination. Costco may maximize its profits by selling at different prices to bulk buyers and ...

4

Because there is not a single successful model of actually doing business. Costco's model is pretty text-book level, but not economics textbook level, but rather marketing textbook level: Differentiate ("In Costco we do things differently"). Make the customer feel special (hey, here is "members only"!). Induce loyalty or at least "loyalty" ("now that I ...

4

In most of Europa the physical price for electricity is determined in day-ahead spot auctions. Essentially it is a free market, where anyone can buy and sell power, given you that you can fulfill the regulation set forth by the different national power exchanges and system operators. This means that every day before 10.00 - 12.00 AM all producers and ...

4

Quantities of products are not increased by transportation. Nor, with a few exceptions, is the possible alteration of their natural qualities, brought about by transportation, an intentional useful effect; it is rather an unavoidable evil. But the use-value of things is materialised only in their consumption, and their consumption may necessitate a ...

4

This is known as the "split-the-difference" mechanism, originally due to Samuelson (1985). See Section 6 of Gibbons et al. (1987) for a discussion of this rule. In particular, this kind of rule only efficiently dissolves the partnership between the two siblings if they have equal (or sufficiently close to equal) shares in the house. Precisely, each sibling ...

4

Two very general reasons are: 1) High prices at the beginning target "early adopters" - people that have a higher "willingness to pay" for a new product just to have it first. Early adopters know that they pay more, and they 're ok with it. 2) As regards consumer reaction, it is much better to reduce prices than to increase prices. So sometimes prices are ...

4

In addition to (intertemporal) price discrimination, there's a parallel process of ramping up production. Especially with tech products, they can have bugs at the beginning, even with all the precautions during design/prototyping. So a massive launch at high production volume is more risky. (Lower production volume also implies higher unit price; see ...

4

I want to flesh out the answers from Alecos Papadopoulos and Bill Clark to make sure it's clear why a firm might want to reduce prices over time—known as intertemporal price discrimination. Suppose there are two groups of potential customers: enthusiasts (who love the product) and laymen (who aren't very interested in the product). Enthusiasts are willing ...

4

Actually economics does not even officially use term price gouging. Your analysis is right, actually economists dislike anti-price gauging legislation for this reason. For example, when the IGM panel of top policy economists were asked about one piece of price gouging legislation in the US, vast majority disagreed with it: However, an important caveat to ...

4

In principle in both positive and negative externality scenario government could just set price to the socially efficient price. However, outside of static textbook example this is non-starter. The socially efficient price even in presence of externalities (positive or negative) is not constant and it will fluctuate across time. Hence government would have ...

4

For a government to address a positive externality by setting the price of a good to its socially efficient price would raise several difficulties. The diagram below relates to the case of a good subject to a positive production externality so that marginal social cost MSC is less than marginal private cost MPC (but no consumption externality, so marginal ...

3

I recommend the Comp-Net database. It is a firm-level data for European countries. It includes a large range of variables, including mark-ups: Check the documentation for more details. Many researchers have also used the Amadeus database, also for Europe. A nice summary about it is here. For the US, take a look at this paper. The authors use three ...

3

1x2 model Consider a mode where production of a single good is given by a constant returns to scale CES production function: $$Y=A(\alpha L^\rho +(1-\alpha)K^\rho)^{\frac{1}{\rho}}$$ where the elasticity of substitution between the two factors is $$\sigma = \frac{1}{1-\rho}$$ It can be shown that the marginal product of labour (equal to the real wage ...

3

(source: dineshbakshi.com) As you can see in the graph, price controls policies create excess demand, therefore you will end up with shortage or you will import more bananas. I'm not a banana expert, but I assume bananas are pretty inelastic. Also, banana supply is inelastic in the short run (they have already planted bananas), therefore the excess ...

3

There’s two prices for a bond: Invoice or dirty price: what you actually pay; and the clean price, which is the dirty price less accrued interest. In market convention, the clean price is the quoted price. Accrued interest starts off at \$0 at a coupon date, and then rises (roughly) linearly each day until it matches the value of a coupon at the coupon ... 3 The model is a variant on penetration pricing (effectively$0 for pirates) which is used to gain market share. The problem is while monopoly may be desirable, the path to monopoly is generally not, as the cost to acquire market share rises relative to the value of each additional unit of market share. While there is no specific study of Adobe that I know ...

3

Your question is somewhat ill-posed as stated, because none of your examples are good instances of businesses creating artificial scarcity. Each of them are businesses that face real capacity constraints, whether it be building space and fire-code restrictions or an attempt to manage a sort of tragedy-of-the-commons demeaning of the service. But you are ...

3

With rent controls and the resulting excess of demand over supply, middle-class white people with stable jobs do very well, and other people find it impossible to find housing. Where landlords can’t use the amount of rent that potential tenants are willing to pay in order to choose between them, they are forced to use use other criteria. Some of those will ...

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There are no laws against "price gouging" where I live, at least the price of medical masks has increased 3-10 fold in the recent weeks, due to the coronavirus outbreak. Yet there is still a shortage of masks. (Also several other things.) Why is this? You write that in the absence of price gouging laws Supply would increase. Increased prices signal ...

3

No it does not for several reasons. Labor theory of value (LTV) central tenant is that there is some intrinsic component to value determined objectively by labor (see Brue and Grant History of Economic Thought 7ed). This implies that there exist some unit of labor in which every value could be measured. In addition, it means that the value ($V$) is some ...

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