The Upside-down Economics of Regulated and Otherwise Rigid Prices

Casey Mulligan and Kevin Tsui ()

No 22305, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A hedonic model featuring quality-quantity tradeoffs reveals a number of surprising market behaviors that can result from price regulations that are imposed on competitive markets for products that have adjustable non-price attributes. Quality need not clear a competitive market in the same way that prices do, because quality can reduce the willingness to pay for quantity. Producers can benefit from price ceilings, at the expense of consumers. Price ceilings can result in quality-degradation “death spirals” that would not occur under quality regulation or excise taxation. The features of tastes and technology that lead to such outcomes are summarized with pairwise comparisons of (not necessarily constant) elasticities.

JEL-codes: K2 L15 L51 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-com, nep-ind, nep-law, nep-mkt and nep-reg
Note: IO PE
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Citations: View citations in EconPapers (4)

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