Administered pricing

Topics: Petroleum, Peak oil, OPEC Pages: 8 (2912 words) Published: December 7, 2013
An administered price is in general a price which is either set (fixed) by legal statute or by a standard procedure formulated as an official policy, instead of being determined directly by supply costs and market demand. Even if supply and demand conditions change, the administered price may therefore stay the same, or it may change in the opposite direction - if e.g. demand falls, the administered price is kept the same or raised, to subsidize the supplier and protect his income, or alternatively the price is kept constant to protect the consumer/purchaser. The use of administered prices in market economies is often part of an economic policy of price controls, but in a planned economy or command economy the majority of prices are usually administered prices. In the United States

In the U.S. administered prices are fixed by policy makers in order to determine, directly or indirectly, domestic market or producer prices. All administered price schemes set a minimum guaranteed support price or target price for a commodity, which is maintained by associated policy measures such as quantitative restrictions on production and imports; taxes and tariffs on imports; export subsidies; and public stockholding. For example, administered prices under the 2002 farm bill (P.L. 107-171) include loan rates and/or target prices, and price support levels for sugar, and dairy products. In Europe

In Europe, an administered price is defined either as a price legally set by a government authority, a (heavily) subsidized price, or an oligopolistic price set by large corporations who command a large share of the market for their products and services. In the USSR, China and Cuba

In socialist societies, an administered price is defined as a price set by the government planning authorities, which contrasts with a market price that can vary according to supply and demand. In a Soviet-type planned economy, most prices for important resources are officially fixed by the state, and adjusted according to state policy. In Heterodox economics

In heterodox economics, it is argued that it is a myth that most prices are determined "by the market. Instead, price levels reflect a mix of market-pricing and administered pricing, and large corporations operate their own internal price regime. Since direct and indirect taxes plus other government levies can amount to anywhere between 20% and 40% (or more) of final selling prices of goods and services, it is argued that a large component of final prices is not determined by the market. Thus, in any real economy, there is a "mix" of market prices, administered prices and combinations of the two.

APM dismantling
In 1997, the Indian government took a strategic decision to deregulate the oil sector and dismantle the administered price mechanism (APM) existing in the Indian oil industry in three phases by the end of March 2002. For the last three years, the oil industry had been undergoing a transformation stage from administered price mechanism to market-determined price mechanism. During this period of transition, the government also aimed at clearing the oil pool deficit and reducing the subsidies on petro-products. The oil pool account is now completely abolished and the deficit has been transferred to the general budget. The government has repaid most of the oil companies' outstanding through the payment of oil bonds. With the dismantling of APM from April 2002, oil companies stand exposed to the vagaries in the international prices of crude oil and products. Hence, their profitability would now be governed by a different set of factors. In Budget 2002-03, the government increased the excise duty on LPG, kerosene and auto CNG from 8% to 16%. Excise duty on petrol was reduced from 90% to 32% and that on diesel from 20% to 16%. Import duty on non-PDS kerosene has been reduced from 35% to 20% while that on PDS kerosene has been increased from 5% to 10%. Import duty on petrol and diesel has been retained...
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