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Equilibrium Responses to Price Controls: A Supply-Chain Approach

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  • Casey B. Mulligan

Abstract

Prices are regulated in many markets, ranging from healthcare to labor to telecommunications. This paper reinterprets the variables in the basic supply-demand model so that both product-definition and quantity are equilibrium outcomes. Specifically, compliance with price controls is achieved by altering the production-factor mix along the supply chain. This approach yields surprising insights into the incidence of price regulations and their effects on the amount of trade. Furthermore, it reveals how many of the short-run effects of price controls can be opposite of what they are in the long run. The supply-chain framework also easily represents business-to-business price controls, which have been more prevalent in policy practice than price-theoretic analysis.

Suggested Citation

  • Casey B. Mulligan, 2024. "Equilibrium Responses to Price Controls: A Supply-Chain Approach," NBER Working Papers 32216, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32216
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    More about this item

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • K2 - Law and Economics - - Regulation and Business Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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