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A toolkit for setting and evaluating price floors

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  • Hernández, Carlos Eduardo
  • Cantillo-Cleves, Santiago

Abstract

Regulators often impose price floors to protect producers from suspected market power by intermediaries. We present a toolkit for predicting, estimating, and explaining the effect of price floors on output and the distribution of welfare. We apply this toolkit to the Colombian road freight sector, taking advantage of rate floors that intended to protect carriers from low freight rates paid by intermediaries. We find that policymakers could have predicted the effect of price floors on quantities: a reduction in quantities for the routes and products for which rate floors were binding. After their implementation in 2017, rate floors benefited carriers but reduced total welfare by 12% of market revenue.
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Suggested Citation

  • Hernández, Carlos Eduardo & Cantillo-Cleves, Santiago, 2024. "A toolkit for setting and evaluating price floors," University of California at San Diego, Economics Working Paper Series qt0209r817, Department of Economics, UC San Diego.
    • Handle: RePEc:cdl:ucsdec:qt0209r817
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    More about this item

    Keywords

    Economics; Applied Economics; Econometrics; Price controls; Price floors; Intermediation; Market power; Incidence; Transportation; Economic Theory; Applied economics; Economic theory;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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