Pro‐Consumer Price Ceilings under Regulatory Uncertainty

John Bennett () and Ioana Chioveanu

Scandinavian Journal of Economics, 2019, vol. 121, issue 4, 1757-1784

Abstract: We examine optimal price ceilings when the regulator is uncertain about demand and maximizes expected consumer surplus. With perfect competition, if regulatory uncertainty is large enough, then softer intervention is called for, with the price ceiling set at a relatively high level compared with a full information scenario. In an imperfectly competitive setting where symmetric firms compete in supply functions, with large enough uncertainty, the optimal ceiling increases with the degree of competition, so greater competitive pressure justifies less restrictive regulation. Under perfect competition, we also determine a cut‐off level of rationing efficiency below which a price ceiling should not be used.

Date: 2019
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https://doi.org/10.1111/sjoe.12298

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Working Paper: Pro-Consumer Price Ceilings under Regulatory Uncertainty (2016)
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