Regulated Prices, Rent Seeking, and Consumer Surplus

Bibliographic Data

ID10173634
AuthorsJeremy Bulow (National Bureau of Economic Research), Paul Klemperer (0000-0003-4372-2962, Centre for Economic Policy Research)
Year2012
Volume120
Issue1
Pages160-186
Publication date2012-02-01
Open AccessNo
TypeARTICLE
VenueJournal of Political Economy (JOURNAL)
Journal identifiersISSN: 0022-3808 • E-ISSN: 1537-534X
PublisherUniversity of Chicago Press (PUBLISHER • US)
DOI10.1086/665416
OpenAlexW2137034103
LanguageEN
Citations received6
References cited10

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., 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

Demand curve · Economic surplus · Economics · Inefficiency · Marginal cost · Marginal revenue · Market demand schedule · Microeconomics · Price elasticity of demand · Price elasticity of supply · Revenue · Supply and demand · Consumer Market Behavior and Pricing · Economic theories and models · Merger and Competition Analysis

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