Price controls, non-price quality competition, and the nonexistence of competitive equilibrium

John William Hatfield, Charles Plott () and Tomomi Tanaka

Games and Economic Behavior, 2016, vol. 99, issue C, 134-163

Abstract: We investigate how price ceilings and floors affect outcomes in continuous time, double auction markets with discrete goods and multiple qualities. When price controls exist, the existence of competitive equilibria is no longer guaranteed; hence, we investigate the nature of non-price competition and how markets might evolve in its presence. We develop a quality competition model based on matching theory. Equilibria of the quality competition model always exist in such price-constrained markets; moreover, they naturally correspond to competitive equilibria when competitive equilibria exist. Additionally, we characterize the set of equilibria of the quality competition model in the presence of price restrictions. In a series of experiments, we find that market outcomes closely conform to the predictions of the model. In particular, price controls induce non-price competition between agents both in theory and in the experimental environment; market behaviors result in allocations close to the predictions of the model.

Keywords: Matching; Stability; Competitive equilibrium; Core; Price controls (search for similar items in EconPapers)
JEL-codes: C71 C78 C92 D47 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:99:y:2016:i:c:p:134-163

DOI: 10.1016/j.geb.2016.06.012

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