Abstract
Three regulatory frameworks, (i) price changes are allowed only once per day; (ii) increases are allowed once a day at a specific time, but decreases are allowed at any time; and (iii) a maximum markup is allowed, are compared in a lab experiment to an unregulated benchmark market without any regulation. We examine them in a simple spatial model with elastic demand. The results reveal that the three price regulation systems differ significantly regarding their impact on gas station profits and consumer welfare. Allowing price changes only once per day seems favorable, while restricting price increases leads to higher prices.
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