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Does Restricting Outsiders Always Lower Price and Benefit Insiders?

Author

Listed:
  • Tat-kei Lai

    (IESEG School of Management (LEM-CNRS 9221))

  • Travis Ng

    (The Chinese University of Hong Kong)

Abstract

Policies that restrict outsiders are common. Some justifications include protecting insiders from high price and leaving more of the concerned products to insiders. Sometimes these policies fail to work because outsiders can get around the restrictions. In a model in which a policy of restricting outsiders is anticipated, we find that if the policy works, it only sometimes lowers the price. When the price does decrease, the product quality decreases too. Not every insider would benefit equally; those insiders who likely suffer are identified. While restricting outsiders may or may not reduce insiders’ consumer surplus, outsiders and the producer are always worse off. They therefore would find ways to get around the restrictions. Evaluating these policies must (a) take into account the possibility that they might not work at all, (b) check their effects beyond just price if they do work.

Suggested Citation

  • Tat-kei Lai & Travis Ng, 2022. "Does Restricting Outsiders Always Lower Price and Benefit Insiders?," The Journal of Real Estate Finance and Economics, Springer, vol. 64(1), pages 153-178, January.
    • Handle: RePEc:kap:jrefec:v:64:y:2022:i:1:d:10.1007_s11146-020-09797-y
    DOI: 10.1007/s11146-020-09797-y
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    More about this item

    Keywords

    Product quality; Customer restrictions; Vertical restraints; Foreign restrictions; Discrimination;
    All these keywords.

    JEL classification:

    • K25 - Law and Economics - - Regulation and Business Law - - - Real Estate Law
    • K29 - Law and Economics - - Regulation and Business Law - - - Other
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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