Ambiguous Social Welfare Effects of Price Regulation Under Imperfect Competition |
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Authors: | Email author" target="_blank">Sabom?ChangEmail author |
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Institution: | (1) McKinsey, 27fl Seoul Finance Center, 84 Taepyungro 1-ga, Jung-gu, Seoul, Korea |
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Abstract: | Conventional wisdom is that a binding price ceiling increases output and so increases social welfare if imposed on an imperfectly competitive market. However, this paper shows that a price ceiling can be harmful to social welfare even though it increases industry output and consumer surplus. This model can be applied to the pharmaceutical industry under price control in many countries, e.g., U.K., Canada, Germany and Japan. |
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Keywords: | price ceiling social welfare Stackelberg competition cost asymmetry |
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