Abstract

In October 2016 Ukraine stopped permanent price control policy for essential goods. Instead, the government has started a temporary 90 days policy for basic goods. It means that any time authority can provide any types of price control policy no longer than 90 days per year. “Any time” is when the economy and society will need government interaction to market pricing in order to control prices. “Any types” of policy means that authority can implement fixed (frozen) prices which is the strictest type of the policy as well as control of producers’ declarations for pricing, which is the least controlled type of the policy. As that the new policy has been just started, there is no much possibility to analyse its consequences. However, this study proposes to analyse permanent price control policy, which has been implemented till 2016 in Ukraine. Because of the absence of the possibility to analyse the new policy, our strategy is based on two points: the first one is to understand needless of price control policy and the second one is to verify the efficiency of provided permanent PCP. It will give understanding whether there were reasons against permanent price control policy as well as the experience of implementing temporal price control policy. In order to understand the needless of permanent price control policy, we proposed to understand the stage of transition of the Ukrainian economy. Based on the difference in abilities of price to reflect quality in the market and planned economies, we used it as a tool for covering research question. Moreover, the quality of the product was decomposed into intrinsic and extrinsic attributes, what allows providing more analysis that is accurate. Therefore, based on the results from the hedonic regression, Ukrainian consumption market is characterized by significantly positive intrinsic price effect and significant brand awareness price effect. Literature evidence suggests that such price abilities are inherent to free markets. Only significant country of origin price effect displays features of the planned economy. The conclusion is that the Ukrainian economy is on its last stages of transition to market economy. Therefore, consumer market is able to reallocate resources efficiently and satisfies the need of all consumers. As result, in the current stage of transition of the Ukrainian economy, there is no need in permanent price control policy. Obtained results demonstrated that the last price control policy was inefficient. Using hedonic pricing regression, we showed that the product from price-controlled market has greater prices than its alternative from the free market. Therefore, it underlines the negative overlooked effect from provided PCP.

Keywords: price control policy (PCP), efficient and inefficient PCP, transition market, market of essential goods, temporary and permanent PCP.

JEL Classification: L11, L15, L51, L66.

Cite as: Kolomiiets, U. (2018). Ukrainian price control policy. Marketing and Management of Innovations, 2, 292-312. https://doi.org/10.21272/mmi.2018.2-23

This work is licensed under a Creative Commons Attribution 4.0 International License

References

1. Alexeev, M. and Leitzel, J., (2001). Income distribution and price controls: Targeting a social safety net during economic transition, European Economic Review, Elsevier, vol. 45(9), pages 1647-1663.
2. Bao, X. H. H. and Wan T.K.A., (2007). “Improved Estimators of Hedonic Housing Price Models.” JRER, 29 (3), 267-301.
3. Bilkey, W.J. & Nes, E. (1982). Country-of-origin effects on product evaluations. Journal of International Business, 13(1), 89-99.
4. Byerlee,D., Jayne, T.S. and Myers, R.J., (2007) Managing food price risks and instability in a liberalizing market environment: Overview and policy options. Food Policy 31 (4), 275-287
5. Coyne, J. C. & L. R. (2015) The Economics of Price Control. Flaws and ceilings: Price Controls and The Damage They Cause. IEA, Institute of Economic Affairs, 2015
6. Dodds, W. B., Monroe, K. B., & Grewal, D. (1991), “Effects of price, brand and store information on buyers’ product evaluation”. Journal of Marketing Research, 28(3), 307-319.
7. Fama, E. (1970). Efficient capital markets: A review of theory and empirical work, J. Finance 25. 383-417.
8. Farrell, J. (1980). Prices as Signals of Quality. PhD Thesis, Brasenose College, Oxford
9. Gabor, A. and Granger, C.W.J. (1966). Prices as an indicator of quality: report on inquiry. Economica, 33, 43-70.
10. Garbarino, E. and Strahilevitz M. (2004). Gender differences in the perceived risk of buying online and the effects of receiving a site recommendation. Journal of Business Research, 57, 768-775.
11. Greenberg, Allan and Sy Collins (1966), “Paired Comparison Taste Test: Some Food for Thoughts”, Journal of Marketing research, 3, pp. 76-80
12. Grossman, S.J. and Stiglitz, J.E. (1976). “Information and Competitive Price Systems”. The American Economic Review, 66(2), 246-253
13. Hayek, Friedrich A. (1945). The Use of Knowledge in Society. American Economic Review. XXXV, No. 4. pp. 519-30.
14. Jacoby, J., Olson, J.C. and Haddock, R.A. (1971), ”Price, Brand Name and Product Characteristics as Determinants of Product Perceived Quality,’’ Journal of Applied Psychology, 55 (6), 570-579.
15. Lancaster, K. (1966). “A New Approach to Consumer Theory”. Journal of Political Economy, 74, 132-157.
16. Long, F., Paez, A. and Farber, S., (2007). “Spatial Effects in Hedonic Price Estimation: A Case Study in the City of Toronto”. Working Paper Series, CSpA WP 020, McMaster University. Hamilton, ON: WP.
17. McConnell, J.D. (1968). The Price-Quality Relationship in an Experimental Setting. Journal of Consumer Research, 5, 334-346.
18. Morton, F.M.S. (2001) “The problems of price controls: History shows that these policies lead to shortages and stagnation; So why do we want to control prescription drug prices?”, Regulation, vol. 24, no. 1.
19. Neelankavil, J.P. and Rai, A. (2009) Basics of International Business. Published by Routledge Taylor and Francis Group, London and New York, p.77.
20. Nelson, P. (1970). Information and Consumer Behavior. Journal of Political Economy 78 (2): 311–329.
21. Oczkowski, E. and Doucouliagos, H., (2014). “Wine Price and Quality Ratings: A Meta-regression Analysis”. American Journal of Agricultural Economics Advance Access, 1-19.
22. Olson, J.C. (1977), ”Price as an Informational Cue: Effects on Product Evaluations,’’ Consumer and industrial Buying Behavior, ed. Arch G. Woodside, Jagdish N. Seth and Peter D. Benett, New York, North Holland, 267-286.
23. Olson, J.C. and Jacoby, J. (1972), ”Cue Utilization in the Quality Perception Process,’’ Advances in Consumer Research, ed. M. Venkatesan, Iowa City, IA: Association for Consumer Research, 167-179.
24. Rao, A.R. and Monroe K.B. (1989). The Effect of Price, Brand Name, and Store Name on Buyers’ Perceptions of Product Quality: An Integrative Review, Journal of Marketing Research, 26(August), 351-7.
25. Rosen, S. (1974). “Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition”. Journal of Political Economy 82(1), 34-55.
26. Shwu-Ing, W. & Li-Pang, H. (2014). The Influence of Perceived Innovation and Brand Awareness on Purchase Intention of Innovation Product — An Example of iPhone. International Journal Of Innovation & Technology Management, 11(4), 1-22.
27. Smith, A. (1904). An Inquiry into the Nature and Causes of the Wealth of Nations. Edwin Cannan, ed. Library of Economics and Liberty. 30 April 2015.
28. Spence, M., (1974). Competitive and optimal responses to signals: An analysis of efficiency and distribution. Journal of Economic Theory, Elsevier, vol. 7(3), pages 296-332.
29. Stride, H. & Lee, S. (2007) No Logo? No Way. Branding in the Non-Profit Sector., Journal of Marketing Management, 23:1-2, 107-122.
30. Wolf, T.A. (1988) Foreign trade in the centrally planned economy. Harwood Academic Publishers, Chur (1988)