The Welfare Effect of a Consumer Subsidy with Price Ceilings: The Case of Chinese Cell Phones

Ying Fan and Ge Zhang

No 28659, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D4 H2 L1 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-com, nep-pay and nep-reg
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Published as Ying Fan & Ge Zhang, 2022. "The welfare effect of a consumer subsidy with price ceilings: the case of Chinese cell phones," The RAND Journal of Economics, vol 53(2), pages 429-449.

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Journal Article: The welfare effect of a consumer subsidy with price ceilings: the case of Chinese cell phones (2022)
Working Paper: The Welfare Effect of a Consumer Subsidy with Price Ceilings: The Case of Chinese Cell Phones (2021)
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