Understanding Price Controls and Nonprice Competition with Matching Theory
Hatfield, John William,
Charles R. Plott, and
Tomomi Tanaka. 2012. "Understanding Price Controls and Nonprice Competition with Matching Theory."
American Economic Review,
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.
Article Full-Text Access
Hatfield, John William (Stanford U)
Plott, Charles R. (CA Institute of Technology)
Tanaka, Tomomi (AZ State U)
C78: Bargaining Theory; Matching Theory
L51: Economics of Regulation