The Problem With Creating a Maximum Price
In India, there is talk of giving states the power to set maximum and minimum fares of taxis for app-based aggregators and allowing surge prices that are two or three times the maximum fare. Surge prices occur during hours when many people desire to use the taxi service, in other words, during times of high demand. This ability to cap the price, however, could potentially prevent an important part of perfect matching markets, market clearing prices. Market clearing prices are prices that result in a perfect matching market where each buyer receives an item with the highest payoff for her. As the article goes on to explain, regulating prices keeps the demand and supply from responding exactly as they should. The article says that higher prices bring more supply and lower demand and that this limit prevents the natural market behavior that leads to market clearing prices.
Analyzing this more in the context of how to calculate market prices demonstrates why setting a maximum price can prevent market clearing prices. Remembering that to determine market clearing prices, the prices of items are gradually raised until each item is only the most wanted item for one buyer or gives the highest payoff to only one buyer. Each buyer will then take the item that give them the highest payoff. In markets with more buyers than items, the prices are driven high enough so that the excess buyers will prefer not to take an item at all rather than pay the price of the item. By capping prices in markets, it is possible that the prices will not be able to be driven high enough to discourage excess buyers. Thus there will be many buyers who will be unsatisfied as they want items but will not be able to get any. Thus the caps on the prices will prevent market clearing prices.
http://www.forbes.com/sites/timworstall/2016/10/26/indias-regulators-miss-the-point-about-surge-pricing/#c9201db60da7