Price Controls and Consumer Surplus

Jeremy Bulow and Paul Klemperer
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Jeremy Bulow: Stanford University

Research Papers from Stanford University, Graduate School of Business

Abstract: Price controls lead to misallocation of goods and encourage rent-seeking. The misallocation effect alone is enough to ensure that consumer surplus is always reduced by a price control in an otherwise-competitive market with convex demand if supply is more elastic than demand; or when demand is log-convex (e.g., constant-elasticity) even if supply is inelastic. The same results apply both when rationed goods are allocated by costless lottery among interested consumers, and when costly rent-seeking and/or partial de-control mitigates the allocative inefficiency. The results are best understood using the fact that in any market, consumer surplus equals the area between the demand curve and the industry marginal revenue curve.

JEL-codes: D45 D60 D61 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-reg
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http://gsbapps.stanford.edu/researchpapers/library/RP2086.pdf

Related works:
Working Paper: Price Controls and Consumer Surplus (2009)
Working Paper: Price Controls and Consumer Surplus (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:2086

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