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17 votes

What is the likely result of rent control in Berlin?

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 ...
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13 votes

Why doesn't Barnes and Noble just lower its prices?

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 ...
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10 votes

What is the likely result of rent control in Berlin?

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 ...
8 votes

What is the likely result of rent control in Berlin?

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 ...
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6 votes
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Effect of property tax on rent

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 ...
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5 votes
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Hedging with volatility swaps?

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, ...
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5 votes

What is the likely result of rent control in Berlin?

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. ...
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5 votes
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If rent control "doesn't work" and supply induces demand, how can cities improve affordability?

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 ...
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  • 567
5 votes

Do 'liquidity pools' effectively determine market price?

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 ...
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4 votes

Why doesn't Barnes and Noble just lower its prices?

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 ...
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  • 41
4 votes
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Why doesn't Costco simply raise prices and nix the membership fee?

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 ...
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4 votes

Why doesn't Costco simply raise prices and nix the membership fee?

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: ...
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4 votes

What are some different methods for pricing electricity?

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 ...
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4 votes
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Distance transported used to price goods in Marxism

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 ...
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4 votes
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What's the name of this pairwise price-setting scheme?

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 ...
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4 votes

Why do companies launch products at much higher prices, only to reduce the price drastically after a few months?

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 ...
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4 votes

Why do companies launch products at much higher prices, only to reduce the price drastically after a few months?

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 ...
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  • 3,730
4 votes

Why do companies launch products at much higher prices, only to reduce the price drastically after a few months?

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 ...
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4 votes

Why do some businesses choose scarcity as their business model instead of raising the price to meet the demand?

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 ...
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  • 1,798
4 votes
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What does economics say about "price gouging" during an emergency?

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 ...
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4 votes

Externality and Output

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 ...
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  • 41.5k
4 votes

Externality and Output

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 ...
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  • 6,693
3 votes
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Data on average/typical retail markups

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 ...
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  • 8,437
3 votes
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Can an overall improvement in technology make the owners of one factor worse off?

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 ...
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  • 8,437
3 votes

Should the government regulate the price of bananas?

(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 ...
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3 votes

Why does bond price tend to 100?

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 ...
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3 votes

Is there an economic analysis of how piracy allows a product to take a hegemonic position?

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, ...
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3 votes

What is the likely result of rent control in Berlin?

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 ...
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3 votes

What does economics say about "price gouging" during an emergency?

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 ...
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  • 26k
3 votes
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Does the Labor Theory of Value hold in the long term in competitive markets?

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 ...
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