Price control...another prison?

MATHIRA MP Ephraim Maina said he will re-introduce his Price Control Bill in parliament in the next two weeks. There is an urgent need to re-introduce the bill to tame prices, he said.

Maina said the bill earlier rejected by President Kibaki is ready to be re-introduced in the wake of run away inflation and soaring food prices."I'm going to re-introduce the Bill in a fortnight in Parliament due to the high cost of living. The common mwananchi is still suffering and the government is not doing enough to tame the prices," he told reporters in Nyeri.

In the light of his statement, I would like to highlight some issues regarding price controls which may not be known to many Kenyans. Alternatively, this can serve as a reminder to those who may have forgotten.

What is price control?


Price control is generally a government imposition on prices of goods and services which is meant to maintain them at what may be considered as a fair price level.

Price control has two dimensions:

a. Consumer oriented dimension

This is where the price is controlled in order to make the goods affordable to consumers. It generally lowers the price of the commodities and is referred to as price ceiling.

b. Producer oriented dimension

This is where price is controlled in order to protect the producers from making heavy loses till they leave the market. Their departure would result to hiking of prices of commodities due to their shortage and hence inflation would rise. To control this, the government sets the minimum price below which a commodity cannot be sold.

The kind of control that the Kenyan MP is advocating for now, considering the inflation hitting the country currently, is the consumer oriented price control.

This may come as good news to many Kenyans, but we ought to consider the effects it might have on our economy in both the short run and long run.

Some of the effects may include:

i. Reduction in quality

To supply demand at the legal price, the most obvious approach is to lower costs. However, in most cases, lower costs means lower quality. During World War II, for example, food sellers operating under ceilings reduced portion size and used less expensive ingredients (e.g., more fat, flour, etc.). It can also be seen in decreased maintenance of rent controlled apartments

ii. Black markets

If somebody cannot obtain needed goods because a price ceiling reduces the quantity, they may turn to the black market. Those who—by luck or good management—obtain goods in short supply can profit by illegally selling at a higher price than the free market allows. The black market price is higher than the free market price because the quantity is less than in a free market transaction, where more sellers could afford to sell the product. People are sometimes forced to buy at these higher prices when a shortage happens and there is no other place to obtain these.

iii. Discrimination

If there is a shortage, sellers may discriminate among customers. In the case of rent control in New York City, landlords have given rent-controlled apartments to celebrities over less-wealthy, non-famous people. This may result to the poor ending up suffering as the rich continue affording the commodities they require.


So, even as we celebrate the almost won fight of having the bill accented, let’s keep in mind the above factors.