Market demand is often ignored or assumed to lead uniformly to the decline of resources. Yet little is known about how market demand influences natural resources in particular contexts, or the mediating effects of biological or institutional factors. Here, we investigate this problem by examining the Pacific red snapper (Lutjanus peru) fishery around La Paz, Mexico, where medium or “plate-sized” fish are sold to restaurants at a premium price. If higher demand for plate-sized fish increases the relative abundance of the smallest (recruit size class) and largest (most fecund) fish, this may be a market mechanism to increase stocks and fishermen's revenues. We tested this hypothesis by estimating the effect of prices on the distribution of catch across size classes using daily records of prices and catch. We linked predictions from this economic choice model to a staged-based model of the fishery to estimate the effects on the stock and revenues from harvest. We found that the supply of plate-sized fish increased by 6%, while the supply of large fish decreased by 4% as a result of a 13% price premium for plate-sized fish. This market-driven size selection increased revenues (14%) but decreased total fish biomass (−3%). However, when market-driven size selection was combined with limited institutional constraints, both fish biomass (28%) and fishermen's revenue (22%) increased. These results show that the direction and magnitude of the effects of market demand on biological populations and human behavior can depend on both biological attributes and institutional constraints. Fisheries management may capitalize on these conditional effects by implementing size-based regulations when economic and institutional incentives will enhance compliance, as in the case we describe here, or by creating compliance enhancing conditions for existing regulations.