On Price Caps under Uncertainty

@inproceedings{Earle2004OnPC,
  title={On Price Caps under Uncertainty},
  author={Robert C. Earle},
  year={2004}
}
This paper shows how standard arguments supporting the imposition of price caps break down in the presence of demand uncertainty. In particular, though in the deterministic case the introduction or lowering of a price cap (above marginal cost) results in increased production, increased total welfare, decreased prices, and increased consumer welfare, we show that all of the above comparative statics predictions fail for generic uncertain demand functions. For example, for price caps sufficiently… CONTINUE READING

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