<p>You are completely right. If in your setup negotiating is an important feature of how prices are set, then even a non-binding price ceiling matters. Search models in labor economics became popular for showing a feature like this. Not with a price ceiling, but with a price floor. In particular when we study minimum wages. In the labor market, the assumption that wages are negotiated is reasonable and then the level of minimum wage affects equilibrium even if it is non-binding. </p>

<p>The conclusion that a non-binding price ceiling has no effect on equilibrium stems from the assumption that markets are competitive. Prices are not negotiated, they are simply posted and people can either buy or not buy. In that case you should not expect a non-binding price ceiling to have any effect.</p>

CC BY-SA 4.0
2019-07-01T17:31:57.947Z
2019-07-01T17:31:57.947Z
Regio
<p>In a rational expectation equilibrium (strategic as well as competitive), certainly a non-binding price ceiling has no effect on equilibrium, as agents correctly anticipates price.</p>

CC BY-SA 4.0
2019-07-04T13:35:12.050Z
What is a rational expectation equilibrium?
Nic Szerman
CC BY-SA 4.0
2019-07-04T12:18:45.753Z
2019-07-04T12:18:45.753Z
Michael
<p>My question seems trivial but I have a particular issue I don't understand. If there's a price ceiling above the price equilibrium, the customers can still use the ceiling as leverage when negotiating, and thus negotiate a lower price. Then the ceiling does have an effect.</p>

CC BY-SA 4.0
2019-07-01T14:14:35.530Z
In general, statements like this always depend on the underlying model. Price ceilings above an equilibrium price may have implications in a larger model. However, in standard models such negotiations are not part of the model.
Bayesian
<macroeconomics><general-equilibrium><price-theory>
Why do non-binding price ceilings have no effect?
Nic Szerman
# Why do non-binding price ceilings have no effect?

(Asked by: username_0 on 2019-07-01)

My question seems trivial but I have a particular issue I don't understand. If there's a price ceiling above the price equilibrium, the customers can still use the ceiling as leverage when negotiating, and thus negotiate a lower price. Then the ceiling does have an effect.

**Tags:** macroeconomics, general-equilibrium, price-theory

> **Comments:**
> **username_1**: In general, statements like this always depend on the underlying model. Price ceilings above an equilibrium price may have implications in a larger model. However, in standard models such negotiations are not part of the model.  

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## 2 answers

### Answer by username_2 on 2019-07-01. Score: 1 | Accepted answer

You are completely right. If in your setup negotiating is an important feature of how prices are set, then even a non-binding price ceiling matters. Search models in labor economics became popular for showing a feature like this. Not with a price ceiling, but with a price floor. In particular when we study minimum wages. In the labor market, the assumption that wages are negotiated is reasonable and then the level of minimum wage affects equilibrium even if it is non-binding.

The conclusion that a non-binding price ceiling has no effect on equilibrium stems from the assumption that markets are competitive. Prices are not negotiated, they are simply posted and people can either buy or not buy. In that case you should not expect a non-binding price ceiling to have any effect.


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### Answer by username_3 on 2019-07-04. Score: 0

In a rational expectation equilibrium (strategic as well as competitive), certainly a non-binding price ceiling has no effect on equilibrium, as agents correctly anticipates price.

> **Comments:**
> **username_0**: What is a rational expectation equilibrium?  

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