Pro-Consumer Price Ceilings under Regulatory Uncertainty

We examine optimal price ceilings when the regulator is uncertain about demand and maximizes expected consumer surplus. With perfect competition, large enough regulatory uncertainty calls for softer intervention, with the price ceiling set at a relatively high level compared to a full information scenario. In an imperfectly competitive setting where symmetric …rms compete in supply functions, with large enough uncertainty, the optimal ceiling increases in the degree of competition, so greater competitive pressure justi…es less restrictive regulation. Under perfect competition , we also pin down a cut-o¤ level of rationing e¢ ciency below which a price ceiling should not be used