Solving the Problem

We should first ask ourselves, what is a person buying when she or he buys an apartment? What sort of services does the apartment give to the renter?

"Living space" is one answer. Different apartments rent for different amounts because (among other reasons!) some are more spacious than others. And, if we are comparing rental costs, "rent per square foot" -- the rent divided by the space -- will be a better comparative figure for many purposes than the rents themselves. But, of course, this is only a first approximation.

Apartments of the same size will still rent for different rents, in many cases, because

one is at a more convenient location than another
one has a better view than another
one has a more pleasing architectural design than another
one is better maintained than another
one is in a more pleasant and "livable" neighborhood than another

and so on. To apply the P-Competitive approach, we will have to construct an index of overall "apartment services." The index will be a weighted average of space, neighborhood qualities, view, condition, and so on.

Of course, some renters (in Philadelphia) will prefer a fine view over Fairmount Park and the Water Works, while others will prefer the Cobblestone ambiance of a row of Federalist Townhouses off Washington Square, and still others will prefer a location close to Drexel University. The weights for our index of "apartment services" will have to be chosen to represent the preferences of an average Philadelphia renter. There are well-known statistical methods that will do this, and they are in regular use in urban and real estate economics.

Once we have our index, we will think of the rental market not as a market for individual apartments, but as a market for "apartment services." Different renters, with different tastes and incomes, will buy smaller or larger amounts of "apartment services," and choose different apartments and rent different apartments accordingly.

Of course, this is only approximately true. The peculiarities of an individual renter or apartment may still account for the choice in any individual case. So a critic could claim that this approach is theoretically questionable. But it works well in practice, and that's what we are concerned with, here: practical application.

Rent Controls, Again