Can governments regulate how much profit margin companies can have?

Question

I keep seeing comments about how companies are having record profits, and consumers are paying for inflationary prices. Can governments regualte profit margins as a form of consumer protection?

In: 0

Answer 1

It is possible, although it comes with some risk. Companies will tend to try to find ways around it, and it can have adverse effects on company behavior.

However, for example in the U.S. healthcare profit margins are limited by law under the Affordable Care Act. It has an “80/20” rule. 80% of premiums must go to medical care, with the remaining 20% free for marketing etc. If they fall below this threshold, they have to rebate customers.