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The welfare effect of a consumer subsidy with price ceilings: the case of Chinese cell phones

Ying Fan (yingfan@umich.edu) and Ge Zhang

RAND Journal of Economics, 2022, vol. 53, issue 2, 429-449

Abstract: Subsidies to consumers may cause firms to charge higher prices, which offsets consumer benefits from subsidies. We study a subsidy program design that mitigates such price increases by making products' eligibility for a subsidy dependent on firms' commitment to price ceilings. To quantify the importance of such competition for eligibility, we develop a structural model and an estimation procedure that accommodate binding pricing constraints. We find that competition for eligibility mitigates the price increases arising from the subsidy and even leads to a reduction in prices for some products. It improves consumer and total surpluses while limiting government subsidy payments.

Date: 2022
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Citations: View citations in EconPapers (2)

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https://doi.org/10.1111/1756-2171.12413

Related works:
Working Paper: The Welfare Effect of a Consumer Subsidy with Price Ceilings: The Case of Chinese Cell Phones (2021) Downloads
Working Paper: The Welfare Effect of a Consumer Subsidy with Price Ceilings: The Case of Chinese Cell Phones (2021) Downloads
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