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On the Welfare Effects of Adverse Selection in Oligopolistic Markets

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Listed:
  • Marco de Pinto
  • Laszlo Goerke
  • Alberto Palermo

Abstract

We consider a principal-agent relationship with adverse selection. Principals pay informational rents due to asymmetric information and sell their output in a homogeneous Cournot-oligopoly. We find that asymmetric information may mitigate or more than compensate the welfare reducing impact of market power, irrespective of whether the number of firms is given exogenously or determined endogenously by a profit constraint. We further show that welfare in a setting with adverse selection may be higher than the maximized welfare level attainable in a world with perfect observability.

Suggested Citation

  • Marco de Pinto & Laszlo Goerke & Alberto Palermo, 2022. "On the Welfare Effects of Adverse Selection in Oligopolistic Markets," CESifo Working Paper Series 10003, CESifo.
    • Handle: RePEc:ces:ceswps:_10003
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    Cited by:

    1. Marco de Pinto & Lazlo Goerke & Alberto Palermo, 2023. "Informational Rents and the Excessive Entry Theorem: The Case of Hidden Action," IAAEU Discussion Papers 202301, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    2. Marco de Pinto & Laszlo Goerke & Alberto Palermo, 2024. "Informational rents and the excessive entry theorem: The case of hidden action," Scottish Journal of Political Economy, Scottish Economic Society, vol. 71(2), pages 237-252, May.

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    More about this item

    Keywords

    adverse selection; oligopoly; welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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