Price Control Implementation Details¶
Important Clarification: Throughout this analysis, price controls apply to the menu/sticker price (pre-sales-tax), consistent with:
Real-world precedent: Scotland’s Minimum Unit Pricing applies pre-VAT; US historical price controls were pre-tax
Enforcement practicality: Regulators monitor posted menu prices, not checkout totals
Legal structure: Sales tax is applied at point of sale, after base price is determined
Example: $7 Beer Price Ceiling
| Component | Amount |
|---|---|
| Maximum menu price | $7.00 ← Price control applies here |
| + NYC sales tax (8.875%) | +$0.61 |
| = Consumer pays | $7.61 |
| - Sales tax to government | -$0.61 |
| - Excise taxes | -$0.074 |
| = Stadium receives | $6.85 |
Implication: When we analyze a “$7 ceiling,” the stadium receives only $6.85 after taxes, creating an even tighter constraint than the headline $7 suggests.
This convention matches international minimum alcohol pricing (Scotland, Wales) and US retail price regulation precedent.
Price Controls¶
Price Ceiling: $7¶
A $7 price ceiling would be a binding constraint (below optimal $13.87).
Effects:
| Metric | Current ($13.87) | With $7 Ceiling | Change |
|---|---|---|---|
| Consumer beer price | $13.87 | $7.00 | -$6.87 (-50%) |
| Stadium receives | $11.41 | $6.35 | -$5.06 (-44%) |
| Total beers sold | 39,700 | 91,604 | +51,903 (+130.7%) |
| Stadium profit | $3.43M | $3.00M | $-0.43M (-12.4%) |
| Consumer surplus | $11.3M | $11.7M | +$0.4M (+3.9%) |
| Externality cost | $0.2M | $0.4M | +$0.2M (+130.7%) |
| Social welfare | $14.5M | $14.3M | +$-0.2M (+-1.3%) |
Annual impacts (81 games):
Stadium revenue loss: -$34M/season
Consumer surplus gain: +$35.8M/season
External cost increase: +$16.8M/season
Net social welfare gain: +$-15.5M/season
Winners:
Consumers (+$35.8M surplus) - Cheaper beer outweighs higher tickets on average
Government (+ tax revenue from higher volume)
Losers:
Stadium (-$34M profit)
Society (+$16.8M externality costs)
Price Ceiling: $8¶
Less restrictive than $7 ceiling:
Effects relative to $7 ceiling:
Slightly lower consumption
Higher stadium profit
Lower externality costs
Similar consumer surplus gain
Price Floor: $15¶
Non-binding (above optimal $13.87), minimal effects.
Beer Ban¶
Complete prohibition of alcohol sales:
| Metric | Impact |
|---|---|
| Stadium revenue | -$2.0M/game |
| Attendance | May decrease 5% (complementarity) |
| Externality costs | -$158k (eliminated) |
| Consumer surplus | Decreases (no beer option) |
Deadweight Loss¶
Price controls create deadweight loss (economic inefficiency):
For $7 ceiling:
Consumer surplus gain: +$35.8M
Producer surplus loss: -$34M
Externality increase: -$16.8M (Note: this is a cost, so it’s a negative impact)
Net gain: +$-15.5M (positive despite DWL)
The positive net reflects that current equilibrium has underpriced externalities.
Pigouvian Taxation¶
Alternative to price controls: tax to internalize externalities.
Optimal Additional Tax¶
Effects:
Consumer price: $13.87 + $2.70 = ${{ pigouvian_consumer_price }}
Reduces consumption ~28% (elasticity -0.29)
Total beers: ~28,500 (from 39,556)
Revenue: ~$8.7M/season
Pigouvian Tax vs Price Ceiling¶
Policy | Consumer Price | Consumption | Stadium Profit | Gov Revenue | Efficiency |
|---|---|---|---|---|---|
Current | $13.87 | 39,700 | $3.43M | ${{ baseline_tax_revenue_k }}k | Baseline |
$7 Ceiling | $7.00 | 91,604 | $3.00M | ${{ ceiling7_tax_revenue_k }}k | DWL from binding constraint |
Pigouvian Tax | ${{ pigouvian_consumer_price }} | 28,500 | $2.1M | ${{ pigouvian_tax_revenue_k }}k | Most efficient |
Pigouvian tax is more efficient:
No deadweight loss (price = social marginal cost)
Raises revenue for affected communities
Reduces externalities
Preserves stadium autonomy
Policy Recommendations¶
First-best: Add $2.70/beer Pigouvian tax
Internalizes external costs
Raises $8.7M/season for NYC
Economically efficient
Second-best: Price floor at $15
Reduces consumption and externalities
No revenue for government
Stadium keeps higher margin
Avoid: Price ceiling below $10
Large stadium revenue loss
Increases externalities
Consumer surplus gain offset by external costs
Consider: Hybrid approach
Moderate tax (+$1.50) + earlier cutoff (6th inning)
Balances efficiency and feasibility