The concept of maximum or minimum price is known as reservation price or reserve price. Maximum price means that how much money a buyer is willing to pay against a product or a service. On the other hand, the minimum price shows the lowest price which the seller wants to get for his product or service. Reservation price concepts are widely used in auctions. OK, now coming to your questions! Basically it is very important to control the maximum and minimum prices to save the interest of both the buyers and the sellers.
Suppose, there is perfect competition in the market and companies start lowering the prices and a price war is initiated in the market. This price war can cause losses to many sellers who are already selling at the break-even point. Therefore, a minimum price control is very important to save the interest of the sellers. On the other hand, if there is monopoly in the market then the companies can get advantage of the market conditions and can charge as much price as they want, especially for the basic needs like electricity. This situation can make the consumers suffer, therefore, for saving the interest of the consumers a maximum price control is required.
Suppose, there is perfect competition in the market and companies start lowering the prices and a price war is initiated in the market. This price war can cause losses to many sellers who are already selling at the break-even point. Therefore, a minimum price control is very important to save the interest of the sellers. On the other hand, if there is monopoly in the market then the companies can get advantage of the market conditions and can charge as much price as they want, especially for the basic needs like electricity. This situation can make the consumers suffer, therefore, for saving the interest of the consumers a maximum price control is required.
