Can prohibitions on “price gouging” reduce deadweight losses?
AbstractThe vast literature on price controls says little about the way laws against “price gouging” differ from generic price ceilings, yet there is an important difference. By creating the foreseeable possibility (not certainty) of a shortage, a prohibition on price gouging may cause rational consumers to increase consumption. This has particularly interesting implications for markets with external benefits – expectations about policy-induced shortages may increase socially beneficial preparedness for times of acute scarcity (e.g., obtaining vaccinations prior to epidemics, keeping goods on hand in preparation for natural disasters). Thus, under some conditions, laws against price gouging may increase total surplus.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Law and Economics.
Volume (Year): 37 (2014)
Issue (Month): C ()
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Price gouging; Price controls; Price ceilings;
Find related papers by JEL classification:
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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