Regulated Prices, Rent-Seeking, and Consumer Surplus
AbstractPrice 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.
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Bibliographic InfoPaper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2012-W03.
Length: 31 pages
Date of creation: 01 Mar 2012
Date of revision:
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Web page: http://www.nuff.ox.ac.uk/economics/
Price Control; Rationing; Allocative Efficiency; Microeconomic Theory; Marginal Revenue; Minimum Wage; Rent Control; Consumer Welfare; Rent Seeking;
Other versions of this item:
- Jeremy Bulow & Paul Klemperer, 2012. "Regulated Prices, Rent Seeking, and Consumer Surplus," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 160 - 186.
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D6 - Microeconomics - - Welfare Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-25 (All new papers)
- NEP-COM-2012-06-25 (Industrial Competition)
- NEP-MIC-2012-06-25 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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