Price Gouging and the Monopoly Option

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ID: 334173
2026
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Abstract
Abstract We investigate a dynamic oligopoly model with two phases: a normal phase where an essential input is available, and a disruption phase where firms must rely on inventories. Disruptions create an overcutting pricing incentive arising from the option to forgo sales and monopolize the market once rivals stock out. This monopoly option causes the price to jump to a supracompetitive level at the advent of the disruption and to remain above the competitive price path throughout. Price caps raise welfare, but reduce inventory investment. Government reserves reduce prices and raise buffer stocks, as do reserve mandates when financially feasible.
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Authors Samuel Häfner, Curtis R. Taylor
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Journal The Review of Economic Studies
Year 2026
DOI
10.1093/restud/rdag119
URL
https://doi.org/10.1093/restud/rdag119
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