Why can omnichannel price differences be problematic in markets with price ceilings or price floors?

• A. They may encourage consumers to exploit price differences, leading to black market activity.
• B. They always result in higher overall market prices.
• C. They guarantee that all consumers pay the same price regardless of the channel.
• D. They eliminate the effects of government-imposed price controls.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concepts of price ceilings and price floors. A price ceiling is a maximum legal price set below the equilibrium price, often causing shortages. A price floor is a minimum legal price set above the equilibrium price, often causing surpluses.
2. Step 2: Recognize that omnichannel pricing means a product can have different prices across various sales channels (e.g., online vs. in-store). This creates price differences for the same good within the same market.
3. Step 3: Analyze how these price differences interact with price controls. If a price ceiling or floor is in place, consumers may notice cheaper prices in one channel and higher prices in another, which can incentivize them to buy in the cheaper channel and resell in the more expensive one.
4. Step 4: Understand that this arbitrage behavior can lead to black market activity, where goods are resold illegally at prices above the ceiling or below the floor, undermining the effectiveness of government-imposed price controls.
5. Step 5: Conclude that omnichannel price differences do not guarantee uniform prices, nor do they always raise prices or eliminate price controls; instead, they can encourage exploitation of price differences, leading to unintended market distortions such as black markets.