Building an argument: Should the state regulate prices?

‘Everyone else is allowed to stay out later!’ If that is how you start a discussion with your parents, you have usually already lost. Not because your wish is unreasonable, but because this is not an argument – it is just a claim.

In week 9, you will debate a real political controversy in class: Should the state regulate prices – for example, by limiting rents or capping the prices of staple foods? This module prepares you for that debate. It deliberately goes beyond factual knowledge: you will learn how to build arguments and get material for both sides of the debate.

Remember: This module does not take sides. It presents the strongest arguments on both sides, each clearly structured. You decide which side convinces you – by the time you take part in the debate, if not before.

You already have the knowledge you need from “Price formation and market equilibrium” and “Competition: monopoly and competitive markets”: you know how prices are set, what happens when prices are too low, and why competition matters. Now you will gain the tools to use that knowledge in a discussion.

A good argument has three parts:

1. Claim – What do you want to say? A clear sentence that takes a position: ‘Our school needs a water dispenser.’
2. Reason – Why is this true? The reason that supports the claim. Look for words such as ‘because’ and ‘since’: ‘… because drinking water helps you concentrate.’
3. Example – What shows this? A specific case, an experience or a figure that provides evidence you can check: ‘At the neighbouring school, fewer headaches were reported after a water dispenser was installed.’

Without a reason and an example, all that remains is an unsupported claim: ‘Water dispensers would just be a good thing.’ That will not convince anyone who does not already agree with you.

Two things to watch out for in the debate:

• Speaking louder is no substitute for giving a reason. Simply repeating yourself more loudly is not making an argument.
• Spot false justifications: Phrases such as ‘… because everyone knows that’ or ‘… because that is just how it is’ sound like reasons, but do not actually give one. If you are unsure, ask yourself: Would this ‘reason’ also convince someone who disagrees?

Rents in many European cities have risen sharply in recent years, especially where lots of people want to move in and little housing is being built. You know the pattern from “Price formation and market equilibrium”: high demand, limited supply, rising prices.

Some states therefore intervene in the rental market. The best-known example is Germany’s rent control law, the Mietpreisbremse (introduced in 2015). In areas where the housing market is under particular pressure, the rent for a new tenancy may be no more than 10 per cent above the local reference rent. The state does not ban landlords from letting properties – it limits how high the price may rise.

Supporters see this as protection for tenants who could otherwise no longer afford to live in their neighbourhoods. Critics argue that rent controls do not address the root cause – too few homes – and may even make building less attractive. You will find fully developed arguments for both sides below.

The second case study: In times of crisis, such as periods of high inflation, several countries have set maximum prices for staple foods. Hungary, for example, capped the prices of some basic products, including flour, sugar, milk and cooking oil, in 2022. Shops were not allowed to charge more than the set price for these products.

The aim: people on low incomes should still be able to afford the essentials – nobody can do without bread and milk.

However, from “Price formation and market equilibrium”, you also know what happens when a price is below the equilibrium price: the quantity demanded rises, supplying the product becomes less worthwhile, and there is a risk of shortages. Indeed, countries with food price caps have repeatedly seen reports of empty shelves for products with capped prices and limits on purchases (‘no more than two packs per person’).

As you can see, both sides of the debate can draw on the same models. They simply weigh up the priorities differently: protecting those affected today or considering the side effects on the market tomorrow. That is exactly what you will debate.

Here are three fully developed arguments on each side, all following the claim – reason – example structure. Read them critically: in the debate, you will have to represent one side and respond to the other side’s arguments.

FOR state price regulation

1. Claim: Price regulation protects people on low incomes when it comes to essential goods. Reason: Nobody can simply give up housing and food or turn to alternatives when prices rise – basic needs leave no way to opt out. Example: A family on a tight budget needs to move but, without rent controls, cannot find an affordable home because newly advertised rents are far above the local reference rent. With rent controls, new tenancies in the neighbourhood remain affordable.
2. Claim: Where there is no competition, controlled prices are fairer. Reason: In a monopoly, there are no competitors putting pressure on prices. The sole supplier could raise prices almost at will because customers have no alternative. Example: Electricity and water networks usually belong to a single operator, so in many places a public authority checks network charges.
3. Claim: Price caps prevent profiteering in emergencies. Reason: In a crisis, desperate people will pay almost any price. This can be exploited, and the most vulnerable are hit first. Example: After natural disasters, drinking water has sometimes been offered at many times its normal price until the authorities intervened.

AGAINST state price regulation

1. Claim: Price caps cause shortages. Reason: If the permitted price is below the equilibrium price, more is demanded and less is supplied – exactly the pattern from “Price formation and market equilibrium”. Example: In countries with food price caps, shelves for products with capped prices were sometimes empty, and shops introduced limits on purchases.
2. Claim: Rent controls can make the housing problem worse in the long term. Reason: When letting properties and building homes become less profitable, less housing is built and renovated – yet limited supply is the root cause of high rents. Example: Critics point to Berlin: during its rent cap in 2020/21, the number of advertised rental properties fell significantly, making it even harder for people to find a home.
3. Claim: A price cap switches off the market’s most important signal. Reason: High prices are unwelcome but useful: they attract new suppliers and curb demand, so supply increases again on its own. Example: Strawberries are expensive in winter (“Supply and demand”). That is precisely why importing them at considerable cost is worthwhile, and why they are still available to buy. A price cap would remove that very incentive.

Remember: Both sides use the argument structure clearly, and both draw on the market models from “Price formation and market equilibrium” and “Competition: monopoly and competitive markets”. You will decide which arguments carry more weight in the debate.