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The Inefficiency of Market Transparency – A Model with Endogenous Entry

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  • Yiquan Gu
  • Burkhard Hehenkamp

    ()

Abstract

Including the entry decision in a Bertrand model with imperfectly informed consumers, we introduce a trade-off at the level of social welfare. On the one hand, market transparency is beneficial when the number of firms is exogenously given. On the other, a higher degree of market transparency implies lower profits and hence makes it less attractive to enter the market in the first place. It turns out that the second effect dominates: too much market transparency has a detrimental effect on consumer surplus and on social welfare.

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File URL: http://repec.rwi-essen.de/files/REP_10_219.pdf
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Bibliographic Info

Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0219.

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Length: 24 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:rwi:repape:0219

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Related research

Keywords: Market transparency; endogenous entry; homogenous products;

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