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On the Effectiveness of Price-Ceiling Regulations: The Case of Fluid-Milk Market in Israel

Author

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  • Bar-Nahum, Ziv
  • Finkelshtain, Israel
  • Kan, Iddo

Abstract

We integrate a differentiated goods oligopoly model with a political-economy model to assess the effectiveness of the partial price-ceiling policy in the Israeli fluid-milk market. We estimate minor political influence of the industry on regulators with respect to the price ceilings, and find markups in the regulated segment considerably lower than those in the unregulated one. Compared to a simulated unregulated industry, the prevailing partial price-ceiling regulation is found reducing market prices by 22% and markups by 78%, and increasing social welfare by 12%. The hypothesis of collusion in the unregulated segment is statistically rejected. We show that the combined estimates of political influence and demand substitution across products turn collusion in the laissez-faire segment an inferior strategy from the industry’s perspective.

Suggested Citation

  • Bar-Nahum, Ziv & Finkelshtain, Israel & Kan, Iddo, 2018. "On the Effectiveness of Price-Ceiling Regulations: The Case of Fluid-Milk Market in Israel," Discussion Papers 290055, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
    • Handle: RePEc:ags:huaedp:290055
    DOI: 10.22004/ag.econ.290055
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    Cited by:

    1. Ziv Bar-Nahum & Israel Finkelshtain & Rico Ihle & Ofir D. Rubin, 2020. "Effects of violent political conflict on the supply, demand and fragmentation of fresh food markets," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 12(3), pages 503-515, June.
    2. Ajay Bhaskarabhatla & Priyatam Anurag & Chirantan Chatterjee & Enrico Pennings, 2021. "How Does Regulation Impact Strategic Repositioning by Firms Across Submarkets? Evidence from the Indian Pharmaceutical Industry," Strategy Science, INFORMS, vol. 6(3), pages 209-227, September.

    More about this item

    Keywords

    Demand and Price Analysis; Livestock Production/Industries;

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