Often you can hear about directive pricing. What kind of economy is using its services? And what features does this pricing mechanism have?
general information
Directive pricing is an approach in which the state dictates the price to the seller of the goods. Moreover, this must be done. Otherwise, an appropriate reaction awaits, which can start with fines and end with jail and confiscation of goods. A system of directive pricing is possible not only with the total transfer of wealth into the hands of the state, but also with classical capitalism, although in somewhat different and unusual forms for ordinary citizens of our country. But be that as it may, the bureaucracy takes power over the economic sector. The introduction of this mechanism into action, as a rule, is caused by good impulses. But not everything turns out as rosy as you want. Do not forget where the well-paved road leads. And with the inept implementation of this mechanism, one can only achieve a worsening of the existing situation.
By the way, when is directive pricing used? The type of economic system in which it is most popular is planned management.
Principles and Methods
In practice, it is not uncommon when price formation occurs even before products begin to be produced. This is possible due to the fact that production costs are taken as the basis. One of the consequences that such directive pricing has is that the market can have an extremely weak effect on the dynamics and level of prices. In this case, the degree of demand for the proposed product is fixed. The same can be seen in market pricing, when demand significantly exceeds the available supply.
State role
As previously mentioned, directive pricing is such a mechanism that can only be implemented if there is planning on the part of the state. Under classical capitalism, the state can regulate prices only for a certain range of services and goods. But in relation to the general situation, it can only determine general rules and establish a certain framework (for example, the marginal level of profitability). The only exception to this is the regulation of enterprises that occupy a monopoly position in the market. In this case, a dialogue may begin on the part of the state to find a compromise on the issue of lowering prices, as well as fines and penalties are imposed. Also, various mechanisms can be created by the government that are aimed at the formation and development of conditional and necessary economic and social priorities.
What is more profitable?
Which option is better? Market pricing or prescriptive? What are their pros and cons? It is impossible to say that one of them is certainly a good choice. Let's look at the following situation: there is a prosperous state that lives in peacetime. In this case, so that citizens can gradually satisfy their needs, the best is market pricing. Everyone who makes unnecessary products or provides useless services goes broke and seeks another occupation. Life is going quietly and peacefully, the state is gradually developing, and the population is becoming richer. But dashing times came. As an example, suppose that the country we are considering has entered the war. In this case, a lot of resources are needed, production capacities and personnel are needed. And if earlier everything was more or less normal, now instability is felt. Prices are starting to rise, there is a panic among the local population, and there it is not far from the precarious situation inside the country. To prevent this, the government introduces mandatory selling prices for all sellers. If someone violates this rule, then the corresponding consequences await him.
Impact on Pricing
So we found out what the directive prices are. From the material considered earlier, it may be believed that this mechanism is undesirable. But this is not entirely correct. Thus, practical experience has shown that the state has leverage on price dynamics and market conditions. And, moreover, it is obliged to use its capabilities. True, this influence should not be carried out by a directive method, but using a well-considered system of measures of influence. Moreover, there should be a clear separation of powers in this case: some of the actions are performed by local authorities, others - by the government. Ideally, a situation is needed in which the market and the state compete. So, if negative trends are outlined, the government orders to put up for sale stocks, so it affects the development of a negative situation as a brake.
Negative features
Although there is no open inflation in directive pricing, it may still occur in a number of cases. But it will be expressed in the shortage of goods and services offered. If at such a moment in time we switch to market pricing, then a sharp rise in prices will occur. That is, the use of the mechanism in question has a number of nuances and aspects, if not taken into account, destabilizing processes occur and the proportions of production are violated. Theoretically, negative aspects can be leveled in the future when finding the best distribution and control mechanisms than we have now.
Paradoxical features
It has already been mentioned that the state can set not only a certain price level, but also its upper border. But that's not all. In practice, there are cases when the state also sets a lower border. At first glance, this may seem absurd, but a similar mechanism can be found in many countries. The best example is the size of the minimum wage. The state sets the minimum price that the employer must pay his employee. Moreover, this mechanism can be found not only in countries that position themselves as socialist, but also in such a stronghold of capitalism as the United States. The negative side of this feature is that the established minimum is often not enough even to pay all official expenses, so the country's residents have to earn extra money in gray or black schemes. The mandatory expenses are food, utilities and clothing. Often, on the part of the broad masses of the population, the establishment of such a minimum is met with a very skeptical attitude, it is considered "mockery" by the state. This, in turn, leads to a certain level of political instability.
