In his classic 1997 text on the economics of property rights, Yoram Barzel’s first extended case study dissects the 1970’s gasoline price controls. Barzel notes that the gas price controls transferred wealth. He starts from the observation that price controls only stipulate one margin of contractual agreements: the price. All others are free to adjust!
Nixon’s controls stipulated that no gas station could exceed the highest price they posted in the last ninety days (a tacit hat-tip to regional variations in price levels). However, not all gas stations sell the same octane of gasoline, which is what allowed for the relevant margin of adjustment here. High-octane sellers replaced their high-quality gas with low quality gas, but continued charging their old, high-octane prices. Some consumers were willing to pay the higher prices for lower quality gas because the alternative was a three-hour wait for the cheaper (also, lower-quality) gas across the street. In so doing, high-octane sellers lowered their costs (their input costs fell because they were buying lower quality gas), while maintaining (or even increasing) their revenues.
In Barzelian spirit, my second video in the “Everyday Economic Errors” series focuses on the non-price adjustments that occur in response to rent control. Perhaps most shocking is the way that Parisians competed for housing during the rent-control-induced, post-World War II housing shortage. I take my cue from Bertrand de Jouvenel’s underrated essay, No Vacancies.