Regulated Prices, Rent-Seeking, and Consumer Surplus

Jeremy Bulow () and Paul Klemperer
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Jeremy Bulow: Graduate School of Business, Stanford University, USA

No 2012-W03, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: Price controls lead to misallocation of goods and encourage rent-seeking. The misallocation effect alone ensures that a price control always reduces consumer surplus in an otherwise-competitive market with convex demand if supply is more elastic than demand; or with log-convex demand (e.g., constantelasticity) even if supply is inelastic. The same results apply whether rationed goods are allocated by costless lottery, or whether costly rent-seeking and/or partial decontrol mitigates the inefficiency. Our analysis exploits the observation that in any market, consumer surplus equals the area between the demand curve and the industry marginal revenue curve.

Keywords: Price Control; Rationing; Allocative Efficiency; Microeconomic Theory; Marginal Revenue; Minimum Wage; Rent Control; Consumer Welfare; Rent Seeking (search for similar items in EconPapers)
JEL-codes: D45 D6 D61 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-03-01
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (48)

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Journal Article: Regulated Prices, Rent Seeking, and Consumer Surplus (2012)
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