The Upside-Down Economics of Regulated and Otherwise Rigid Prices

53 Pages Posted: 7 Jun 2016

See all articles by Casey B. Mulligan

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Kevin K. Tsui

Clemson University - John E. Walker Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2016

Abstract

A hedonic model featuring quality-quantity tradeoffs reveals a number of surprising market behaviors that can result from price regulations that are imposed on competitive markets for products that have adjustable non-price attributes. Quality need not clear a competitive market in the same way that prices do, because quality can reduce the willingness to pay for quantity. Producers can benefit from price ceilings, at the expense of consumers. Price ceilings can result in quality-degradation “death spirals” that would not occur under quality regulation or excise taxation. The features of tastes and technology that lead to such outcomes are summarized with pairwise comparisons of (not necessarily constant) elasticities.

Suggested Citation

Mulligan, Casey B. and Tsui, Kevin K., The Upside-Down Economics of Regulated and Otherwise Rigid Prices (June 2016). NBER Working Paper No. w22305. Available at SSRN: https://ssrn.com/abstract=2790702

Casey B. Mulligan (Contact Author)

University of Chicago ( email )

1126 East 59th Street
Chicago, IL 60637
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Kevin K. Tsui

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

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