Strategic Pricing and Consumer Welfare under One-Sided Price Regulation

TL;DR

This paper analyzes how a specific price regulation in Germany affects firm pricing strategies and consumer welfare, considering demand uncertainty and strategic behavior over two periods.

Contribution

It introduces a model of two-period pricing under regulation, showing how rules influence prices and consumer surplus in uncertain demand scenarios.

Findings

Regulation tends to increase expected average prices when high demand is likely.

Consumer surplus increases if prices do not rise under regulation.

Expected prices remain unchanged when demand variability is low.

Abstract

Motivated by Germany's April 2026 fuel price regulation, in this note I study a two-period pricing problem with demand uncertainty and a rule that prohibits more than one price increase during the day. Under flexible pricing, the firm chooses the static monopoly price in each period. Under the regulation, by contrast, it may price strategically high in period 1 to preserve flexibility in period 2. I show that the regulation weakly raises expected average prices. The increase is strict when future high demand is sufficiently likely and the gap between high and low demand is large; otherwise, expected average prices are unchanged. Consumer surplus rises when expected prices do not, and decreases otherwise.