Suppose there is construction contract

V: $100.000, R=$5.000, P=$75.000

When the builder’s production costs, C, are uncertain at the time contract is made, it is efficient for the builder to breach the contract if C> $100.000.

The builder will actually breach when C>100.000 under reliance damages.

Price Cap Regulation is often criticized because it provides little incentive to reduce costs and increase efficiency.

When companies knowingly set the price low (Predatory Pricing) to make sure other companies cannot create profits and thus exit the market, they hurt competition and limit the choice of consumers.

In year 2000, Turkish Government decided to remove the fragmented structure in banking regulation and supervision, and to establish an independent body which will be the sole authority in banking sector. The main aim was to improve the effectiveness of regulation and supervision and to establish an independent decision-making mechanism. As a result, Banking Regulation and Supervision Agency (BRSA) was established in June 1999 according to Banks Act Nr. 4389 and began to operate in August 2000.

A classic criticism of price caps is that it encourages companies to upgrade the quality of service in an effort to cut costs.

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