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Understanding Price Controls and Non-Price Competition with Matching Theory

Hatfield, John William and Plott, Charles R. and Tanaka, Tomomi (2012) Understanding Price Controls and Non-Price Competition with Matching Theory. American Economic Review, 102 (3). pp. 371-375. ISSN 0002-8282.

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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.

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Additional Information:Copyright © 2012 AEA. We thank Marcus Berliant, Clayton Featherstone, Scott Duke Kominers, Muriel Niederle, Alvin E. Roth, Nilanjan Roy, William Zame, and seminar participants at Boston College, the 2009 Lee Center Workshop at Caltech, Harvard Business School, and New York University for helpful discussions. The financial support of the Gordon and Betty Moore Foundation and the support of the Caltech Laboratory of Experimental Economics and Political Science are gratefully acknowledged. Hatfield appreciates the hospitality of University of Tokyo, which hosted them during parts of this research.
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Gordon and Betty Moore FoundationUNSPECIFIED
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Issue or Number:3
Classification Code:C78: Bargaining Theory; Matching Theory L51: Economics of Regulation
Record Number:CaltechAUTHORS:20131210-161955648
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Official 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.102.3.371
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:42940
Deposited By: Susan Vite
Deposited On:11 Dec 2013 20:16
Last Modified:03 Oct 2019 06:03

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