Understanding Price Controls and Nonprice Competition with Matching Theory
American Economic Review
vol. 102,
no. 3, May 2012
(pp. 371-75)
Abstract
We develop a quality competition model to understand how price controls affect market outcomes in buyer-seller markets with discrete goods of varying quality. While competitive equilibria do not necessarily exist in such markets when price controls are imposed, we show that stable outcomes do exist and characterize the set of stable outcomes in the presence of price restrictions. In particular, we show that price controls induce non-price competition: price floors induce the trade of inefficiently high quality goods, while price ceilings induce the trade of inefficiently low quality goods.Citation
Hatfield, John William, Charles R. Plott, and Tomomi Tanaka. 2012. "Understanding Price Controls and Nonprice Competition with Matching Theory." American Economic Review, 102 (3): 371-75. DOI: 10.1257/aer.102.3.371JEL Classification
- C78 Bargaining Theory; Matching Theory
- L51 Economics of Regulation