Communism and the Market
The Economist reports that the city of Shanghai has been auctioning car license plates. The average auction price has recently been $6,900, truly remarkable considering average family income in China, and even in Shanghai. The number of plates given out in 2011 will be reduced further in an attempt to reduce gridlock and pollution (both of which my experience several years ago in Shanghai suggests are world-class).?This time, though, plates will be given away in a lottery. Why the substitution of a lottery for an auction? The State will be forgoing the auction revenue, which seems unfortunate.
The article also notes the spillover of the limit on license plates to the related market for new cars. This will shift the demand for new cars leftward, reducing upward price pressure in that market.