Price Controls and Consumer Surplus.

Working paper

The condition for when a price control increases consumer welfare in perfect competition is tighter than often realised. When demand is linear, a small restriction on price only increases consumer surplus if the elasticity of demand exceeds the elasticity of supply; with log-linear or constant-elasticity, demand consumers are always hurt by price controls. The results are best understood - and can be related to monopoly-theory results - using the fact that consumer surplus equals the area between the demand curve and the industry marginal-revenue curve.

Authors: Bulow, J; Klemperer, P

• Publisher: Nuffield College (University of Oxford)
• Series: Working Papers
• Publication date: 2009-01-01
• Language: English