er theoretical function of prices in a free market economy: the current price levels in a free market economy are those which will clear current markets. IMB practically created the computer market, and had been accustomed to having its own way in that market. The company charged premium prices for its products on the basis of super ior quality and service. This policy began to unravel, as other computer manufacturers gained reputations for quality products, and offered prices significantly below those of IBM. To stem its loss of market share in this changing market environment, IBM responded with a price war of its own.
Schmitt, R. B. "California Auto Insurers Told to Limit Premium Increases to Rate of Inflation." The Wall Street Journal, 6 December 1989, A2.
This research critiques the above referenced article in the context of economic theory related to the regulation of business. Government regulation of business is often directed toward the control of monopoly power. In other instances, how ever, it may be designed to promote fairness and equity, assure public safety, protect the environment, or any one of several other reasons.
I think that the referenced article is relevant to the regulation of business by government, because it describes an attempt by the State of California to intervene in the market by regulating price increases for automobile insurance in that state. The action on the part of the state government is in response to an initiative passed by California voters. The initiative itself was a response by the voters/consumers of the State of California to a situation wherein they thought that automobile insurers in that state were setting rates in an unfair and inequitable manner.
The problem of equity in automobile insurance rates is not new to California (or to most o
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