Equilibrium under price controls with endogenous transactions costs

In this paper we present an equilibrium model for an exchange economy with fixed prices and endogenously determined search or transactions costs. Given the fixed prices, endogenously determined equilibrium buying and selling prices (which include transactions costs) result. These costs occur on either the demand or supply side of each market, but not both. We see an eventual application of this approach to an evaluation of welfare costs of either economy-wide wage and price controls, or sector-specific price controls such as energy. In the final section we present some simple numerical examples which illustrate the approach.