Journal of Economics

, Volume 95, Issue 3, pp 233–253 | Cite as

Price regulation, product location, and welfare

  • Noriaki Matsushima


This paper investigates the imposition of a binding price ceiling and how it affects overall welfare and the location of a monopolist that is price-discriminating between two markets. The analysis shows that the imposition of a price-ceiling induces the monopolist to locate at the regulated market and that the imposition may actually reduce welfare. The setting is extended to a duopoly market. Two types of regulation are considered. The welfare implications of the regulations are discussed.


Price discrimination Price ceiling Multi-product firm 

JEL Classification

L51 L12 F23 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Ahlering B (2004) The impact of regulatory stringency on the foreign direct investment of global pharmaceutical firms. ESRC Center for Business Research, Working paper, No. 280Google Scholar
  2. Anton JJ, Vander Weide JH, Vettas N (2002) Entry auctions and strategic behavior under cross-market price constraints. Int J Ind Organ 20: 611–629CrossRefGoogle Scholar
  3. Armstrong M, Vickers J (1993) Price discrimination, competition and regulation. J Ind Econ 41: 335–359CrossRefGoogle Scholar
  4. Caves R (1996) Multinational enterprise and economic analysis. Cambridge University Press, CambridgeGoogle Scholar
  5. Chang S (2004) Ambiguous social welfare effects of price regulation under imperfect competition. J Econ 81: 53–60CrossRefGoogle Scholar
  6. Cowan SGB (1997) Tight average revenue regulation can be worse than no regulation. J Ind Econ 45: 75–88Google Scholar
  7. DeGraba PJ (1987) The effects of price restrictions on competition between national and local firms. RAND J Econ 18: 333–347CrossRefGoogle Scholar
  8. Kang J, Weisman DL, Zhang M (2000) Do consumers benefit from tighter price cap regulation. Econ Lett 67: 113–119CrossRefGoogle Scholar
  9. Lahiri S, Ono Y (1988) Helping minor firms reduces welfare. Econ J 98: 1199–1202CrossRefGoogle Scholar
  10. Law PJ (1995) Tighter average revenue regulation can reduce consumer welfare. J Ind Econ 43: 399–404CrossRefGoogle Scholar
  11. Mujumdar S, Pal D (2005) Do price ceilings abroad increase U.S. drug prices? Econ Lett 87: 9–13CrossRefGoogle Scholar
  12. Norman G (2002) The relative advantages of flexible versus designated manufacturing technologies. Reg Sc Urban Econ 32: 419–445CrossRefGoogle Scholar
  13. Tirole J (1988) The theory of industrial organization. MIT Press, CambridgeGoogle Scholar

Copyright information

© Springer-Verlag 2008

Authors and Affiliations

  1. 1.Graduate School of Business AdministrationKobe UniversityKobe, HyogoJapan

Personalised recommendations