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The Upside-down Economics of Regulated and Otherwise Rigid Prices

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  • Casey B. Mulligan
  • Kevin K. Tsui

Abstract

A hedonic model featuring quality-quantity tradeoffs reveals a number of surprising market behaviors that can result from price regulations that are imposed on competitive markets for products that have adjustable non-price attributes. Quality need not clear a competitive market in the same way that prices do, because quality can reduce the willingness to pay for quantity. Producers can benefit from price ceilings, at the expense of consumers. Price ceilings can result in quality-degradation “death spirals” that would not occur under quality regulation or excise taxation. The features of tastes and technology that lead to such outcomes are summarized with pairwise comparisons of (not necessarily constant) elasticities.

Suggested Citation

  • Casey B. Mulligan & Kevin K. Tsui, 2016. "The Upside-down Economics of Regulated and Otherwise Rigid Prices," NBER Working Papers 22305, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22305 Note: IO PE
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    References listed on IDEAS

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    Cited by:

    1. Casey B. Mulligan, 2016. "Automated Economic Reasoning with Quantifier Elimination," NBER Working Papers 22922, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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