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Tighter Price Cap Regulation on Consumer Surplus and Utility

Author

Listed:
  • Chun-Hung Chen

    (Department of Accounting, Chaoyang University of Technology, Wufong, Taiwan 413.)

  • Ting-Kun Liu

    (Department of Finance, Chaoyang University of Technology, Wufong, Taiwan 413.)

Abstract

Kang, Weisman, and Zhang (2000) demonstrated that, under a tighter price cap, consumer welfare increases with the independence of demands. Conversely, the tighter price cap may negatively impact consumer welfare in situations involving interdependent demands. This paper identifies an overlooked property of Kang et al. (2000), namely, that the cross-price effects should be symmetrical without an income effect and demand functions of a Hicksian type. This paper reveals the invariant conclusion that consumers always benefit from a tighter price cap. Besides, it further derives the effects of the tighter price cap on consumer utility, and concludes that the net price elasticity of demand is the key to the effect of the average revenue constraint.

Suggested Citation

  • Chun-Hung Chen & Ting-Kun Liu, 2008. "Tighter Price Cap Regulation on Consumer Surplus and Utility," Economics Bulletin, AccessEcon, vol. 12(37), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-08l50012
    as

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    File URL: http://www.accessecon.com/pubs/EB/2008/Volume12/EB-08L50012A.pdf
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    References listed on IDEAS

    as
    1. Law, Peter J, 1995. "Tighter Average Revenue Regulation Can Reduce Consumer Welfare," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 399-404, December.
    2. Kang, Jaesung & Weisman, Dennis L. & Zhang, Mingyuan, 2000. "Do consumers benefit from tighter price cap regulation?," Economics Letters, Elsevier, vol. 67(1), pages 113-119, April.
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    More about this item

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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