Austrian-style gasoline price regulation: How it may backfire |
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| Institution: | 1. College of Economics and Management, Northwest A&F University, No.3 Taicheng Road, Yangling, Shaanxi 712100, China;2. Department of Forest Sciences, University of Helsinki, P.O. Box 27, 00014, Finland;3. School of Forestry and Wildlife Sciences, Auburn University, Auburn, AL 36849, USA;4. Department of Agricultural Economics and Rural Sociology, Auburn University, Auburn, AL 36849, USA;5. College of Economics and Management, Nanjing Forestry University, No.159 Longpan Road, Nanjing, Jiangsu 210037, China;1. School of Architecture and Civil Engineering, China University of Mining and Technology, Xuzhou 221116, China;2. Department of Chemical & Biomolecular Engineering, National University of Singapore, 4 Engineering Drive 4, Singapore 117576, Singapore;3. Environmental Research Institute, National University of Singapore, Singapore 117576, Singapore;4. School of Mechanical Engineering, Shanghai Jiao Tong University, Shanghai 200240, China;1. Department of Management Sciences, Tamkang University, 25137 Taipei, Taiwan;2. Department of International Business, Soochow University, 100 Taipei, Taiwan |
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| Abstract: | In January 2011, a price regulation was established in the Austrian gasoline market which prohibits firms from raising their prices more than once per day. Similar restrictions have been discussed in New York State and Germany. Despite their intuitive appeal, this article argues that Austrian-type policies may actually harm consumers. In a two-period duopoly model with consumer search, I show that under the regulation, firms will distort their prices intertemporally in such a way that their aggregate expected profit remains unchanged. This implies that, as some consumers find it optimal to delay their purchase due to expected price savings, but find it inconvenient to do so, a friction is introduced that decreases net consumer surplus in the market. |
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