Most area where price controls are established are regulated monopolies and the controls are set to allow for recovery of cost plus a profit percentage. With those types of controls you have an actual effect on the market (primarily the less profit that you mention, compared to the same monopoly without the controls), but those are not normal markets.
In a market with no government supported monopoly, and dealing with commodities that can be transported outside of the area affected by the controls, or never transported in in the first place (example the gasoline market, OPEC is neither dominate enough nor unified enough to take the role of the monopoly here, and also it in the oil market, a market for the raw materials for the gasoline market but not the same market), price controls (usually ceilings so I'll assume that) are very likely to have little or no effect, or cause shortages.
The market for drugs is more like the market for gasoline. Price ceilings can cause shortages and probably to an extent currently are doing so.
The market for medical services, is in-between the two examples. Doctors and hospitals don't move as easily as drugs or oil or gasoline, and they have some degree of government protection (certificate of need laws for new hospitals, education and certification requirements for doctors, etc.), to the extent the restrictions allow doctors, hospitals etc. to extract rents from the market, price controls could possibly work to reduce their profits without causing shortages, esp. in the short run as the investments in hospital facilities, doctor education etc. have already been made, the reduction in the incentive for future investments would take time to be felt unless the price ceilings where draconian. But you will get shortage effects here as well as demonstrated by waiting times for medical treatment in many countries, or the difficulty of finding a doctor for new Medicare patients. |
