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by js8
619 days ago
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There is an incentive for companies to increase prices, regardless of the price cap, aka "profit motive". That we can agree on. My question is about the incentive to decrease prices (e.g. due to competition). Why it should be affected by the price cap? That's what you need to explain. |
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You usually see %profit caps as a failed band-aid in markets with poor competition. For example, customers usually dont have a choice in electric company.
There is also really poor competition in health insurance for a number of reasons. Insurance is tied to employment and both options and mobility are limited. Within those options, it is verry difficult to discern differences. I certainly cant tell if a 10% cheaper plan is that way because it is more efficiently run, or if it provides 10% worse coverage.
Last, while firms may compete on total price, they can collaborate to raise the costs for the industry at large. For example, health insurance companies would want to wholesale price of drugs to rise for everyone.
Im not saying that %profit caps are worse than unfettered monopolies (although they might in some cases). My Point is that profit can have huge market distortions, and economically sound solutions would focus on addressing the fundamental issue of poor competition.