Regulated Prices, Rent Seeking, and Consumer Surplus
Year: 2012
Type: article
Abstract: Price 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., constant elasticity) 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.
Source: Journal of Political Economy
DOI: 10.1086/665416
Authors: Jeremy Bulow, Paul Klemperer
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2137034103