Posted in Marketing and Strategy Terms, Total Reads: 1195
Definition: Administered Price
The price of a commodity which is dictated by an independent agency and not arrived at through negotiations between buyers and sellers Is called administered price. In most of the cases, the independent agency is the government but it may also be the management of a firm who enjoys a considerable market share or monopoly in the market. Thus, administered price is not a function of the market forces of supply and demand.
In Economics terms, administered prices are generally above or below the equilibrium prices and therefore are undesirable. These prices are also called Price ceiling or price floor often set by the government.
Price Ceiling is the highest price that can be charged for a product. Price floor is the lowest price that can be charged for a product. The main motto behind setting these prices is to stabilize the market in times of excess demand over supply or vice-versa.
When supply and demand for the good or service changes, the administered price is also changed to either subsidize the supplier or protect the consumer.
For Example, Government sets the price floor for wheat exports and minimum wages while it sets a price ceiling for house rents.