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Implementing Efficient Market Structures: The Role of Information Transmission

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  • Eberhard Feess
  • Michael Paust

Abstract

We extend the literature on the implementation of efficient market structures to private information on marginal costs. We consider a setting with an incumbent and two potential entrants whose costs can be either high or low. By setting the license fee appropriately, the regulator can induce truth-telling by the potential entrants, and can then implement the welfare-maximizing market structure. We distinguish between a disclosure policy , where the regulator reveals the types of entrants before the market game is played, and a concealment policy , where he keeps silent about types. While the concealment policy is predominant in practice, we show that the disclosure policy leads to higher social welfare.

Suggested Citation

  • Eberhard Feess & Michael Paust, 2015. "Implementing Efficient Market Structures: The Role of Information Transmission," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 71(2), pages 240-277, June.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201506)71:2_240:iemstr_2.0.tx_2-s
    DOI: 10.1628/001522108X14180267843162
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    More about this item

    Keywords

    information transmission; market structure; private information; regulation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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