Introduction: The price of a good or service is one of the most important economic variables, playing a decisive role in the decision-making of consumers and producers. Accordingly, governments and public institutions tend to intervene in the pricing of certain goods and services to regulate markets, prevent excessive price fluctuations, and enhance consumer welfare. Tehran Municipality Management of Fruit and Vegetables Organization (TMMFVO), as a public institution, intervenes in the pricing process to ensure citizens’ access to healthy and affordable products. Examining the welfare implications of such interventions is of considerable importance. Among the products supplied by the TMMFVO, potato is considered a strategic agricultural commodity due to its nutritional and economic importance, playing a significant role in food security and household consumption. Therefore, pricing policies for this product can have substantial effects on consumer access, vendors’ income, and overall social welfare. Despite the extensive literature on optimal pricing and the welfare effects of pricing policies, relatively few studies in the domestic literature have simultaneously examined the role of inventory levels, pricing policies, and their welfare implications within a partial equilibrium framework. In this context, incorporating inventory dynamics is particularly important for perishable commodities such as potatoes, where supply fluctuations and limited storage capacity can significantly influence market outcomes. Ignoring inventory constraints may lead to misleading pricing recommendations that do not reflect actual market conditions. Moreover, the interaction between price levels, demand responsiveness, and excess supply plays a crucial role in determining both market efficiency and welfare distribution. Accordingly, a more comprehensive analytical framework is required to capture these interdependencies and evaluate the pricing policies beyond static market assumptions. This study aimed at investigating this gap by integrating the inventory levels into a partial equilibrium optimization model and examining how different welfare weights could affect the optimal pricing decisions as well as the resulting allocation of social welfare between consumers and vendors.
Materials and Methods: In this study, focusing on potato pricing within the TMMFVO, an optimization framework based on a social welfare function was employed. The model was designed to determine optimal selling prices under different inventory levels and to evaluate the resulting welfare effects of price interventions implemented by the organization. By incorporating demand, supply, and inventory conditions into a partial equilibrium framework, the analysis allowed for a systematic assessment of how alternative welfare weights would influence pricing decisions and the distribution of benefits between consumers and vendors.
Results and Discussion: The study results indicated that increasing the weight assigned to consumer surplus in the social welfare function led to lower optimal selling prices, reflecting the policymaker’s preference for enhancing consumer access to essential food commodities. In the scenario where , representing the equal weights assigned to consumer surplus and vendor profit, the value of the social welfare function was lower than the amount under the current pricing policy. However, increasing the weight assigned to consumer surplus from to resulted in only negligible changes in the optimal prices. This finding suggests that beyond a certain level of priority given to consumer welfare, the pricing solution reaches a relatively stable range, and further increases in the weight of consumer surplus do not lead to additional reductions in optimal prices. Therefore, the higher welfare level observed under is largely attributable to changes in the weighting structure of the social welfare function rather than to substantial changes in pricing policy. From a policy perspective, appears to provide a more balanced outcome between consumer support and maintaining the economic viability of vendors.
Conclusion and Suggestions: The significant differences between the optimal prices and both market prices and the current prices in the TMMFVO indicate the high potential of this policy tool in improving consumer welfare and enhancing the efficiency of agricultural products markets. Since the study results showed that at the higher weights assigned to consumer surplus, optimal prices would remain constant beyond a certain threshold, it is recommended that policymakers, instead of overemphasizing price support, adopt an optimal welfare weight. This approach not only leads to a meaningful improvement in social welfare but also maintains the income stability of vendors and producers.
Furthermore, because price reductions under high inventory conditions do not necessarily lead to an increase in effective demand, it is recommended that pricing policies in marketplaces be designed considering welfare effects rather than relying solely on the inventory levels. On the other hand, given the price gap between market prices and the current prices in the markets of TMMFVO as well as the results of the optimization model, it is suggested that the TMMFVO marketplace use social welfare-based pricing as an active market-regulation tool. This would allow the TMMFVO marketplaces to maintain their price advantage relative to the city while achieving higher welfare efficiency.