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Market Transparency: A Mixed Blessing?

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Author Info

  • H. Peter Møllgaard

    (Copenhagen Business School)

  • Per Baltzer Overgaard

    (University of Aarhus)

Abstract

Antitrust practitioners and consumers protectionists often argue that market transparency should be improved to allow consumers to shop around for bargain prices thereby putting pressure on oligopolists´ pricing. We model how transparency, interpreted as the comparability from the point of view of consumers of the characteristics of goods and services, affects the outcome of a repeated oligopoly. Improved transparency may make consumers switch suppliers more easily. This increases the static temptation of individual firms to deviate from tacitly agreed prices, but at the same time the future punishment may become more severe. When the number of firms is small, the "optimal degree of transparency" may not be perfect transparency, unless the oligopolists may rely on sophisticated, optimal punishment strategies. When the number of firms grows larger, the optimal degree of transparency increases, and from some point onward perfect transparency is optimal. We discuss the various policy implications of these results.

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File URL: http://www.econ.ku.dk/cie/dp/dp_1997-1999/1999-15.pdf/
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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1999-15.

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Length: 32 pages
Date of creation: Jul 1999
Date of revision: Feb 2000
Handle: RePEc:kud:kuieci:1999-15

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Related research

Keywords: market transparency; customer switching; repeated oligopoly;

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Citations

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Cited by:
  1. Lommerud, Kjell Erik & Sørgard, Lars, 2002. "Entry in Telecommunication: Customer Loyalty, Price Sensitivity and Access Prices," CEPR Discussion Papers 3502, C.E.P.R. Discussion Papers.
  2. Schultz, Christian, 2005. "Transparency on the consumer side and tacit collusion," European Economic Review, Elsevier, vol. 49(2), pages 279-297, February.
  3. Christian Schultz, 2002. "Transparency and Tacit Collusion in a Differentiated Market," CESifo Working Paper Series 730, CESifo Group Munich.
  4. Boone, Jan & Potters, Jan, 2002. "Transparency, Prices and Welfare with Imperfect Substitutes," CEPR Discussion Papers 3256, C.E.P.R. Discussion Papers.
  5. Michele Grillo, 2002. "Collusion and Facilitating Practices: A New Perspective in Antitrust Analysis," European Journal of Law and Economics, Springer, vol. 14(2), pages 151-169, September.
  6. Boone, Jan & Pottersz, Jan, 2006. "Transparency and prices with imperfect substitutes," Economics Letters, Elsevier, vol. 93(3), pages 398-404, December.
  7. Møllgaard, Peter, 2002. "Must Trust Bust?," Working Papers 02-2002, Copenhagen Business School, Department of Economics.
  8. Schultz, Christian, 2004. "Market transparency and product differentiation," Economics Letters, Elsevier, vol. 83(2), pages 173-178, May.
  9. Per Baltzer Overgaard & Peter Møllgaard, 2005. "Information Exchange, Market Transparency and Dynamic Oligopoly," CIE Discussion Papers 2005-11, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  10. Liliane Karlinger, 2008. "How Demand Information Can Destabilize a Cartel," Vienna Economics Papers 0803, University of Vienna, Department of Economics.

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