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Market Transparency: A Mixed Blessing?

Author

Listed:
  • 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.

Suggested Citation

  • H. Peter Møllgaard & Per Baltzer Overgaard, 1999. "Market Transparency: A Mixed Blessing?," CIE Discussion Papers 1999-15, University of Copenhagen. Department of Economics. Centre for Industrial Economics, revised Feb 2000.
  • Handle: RePEc:kud:kuieci:1999-15
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    File URL: http://www.econ.ku.dk/cie/dp/dp_1997-1999/1999-15.pdf/
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    Citations

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    Cited by:

    1. Møllgaard, Peter, 2002. "Must Trust Bust?," Working Papers 02-2002, Copenhagen Business School, Department of Economics.
    2. Lommerud, Kjell Erik & Sorgard, Lars, 2003. "Entry in telecommunication: customer loyalty, price sensitivity and access prices," Information Economics and Policy, Elsevier, vol. 15(1), pages 55-72, March.
    3. 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.
    4. Boone, Jan & Pottersz, Jan, 2006. "Transparency and prices with imperfect substitutes," Economics Letters, Elsevier, vol. 93(3), pages 398-404, December.
    5. Rasch, Alexander & Herre, Jesko, 2013. "Customer-side transparency, elastic demand, and tacit collusion under differentiation," Information Economics and Policy, Elsevier, vol. 25(1), pages 51-59.
    6. Liliane Karlinger, 2008. "How Demand Information Can Destabilize a Cartel," Vienna Economics Papers 0803, University of Vienna, Department of Economics.
    7. Christian Schultz, 2002. "Transparency and Tacit Collusion in a Differentiated Market," CESifo Working Paper Series 730, CESifo Group Munich.
    8. 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.
    9. Schultz, Christian, 2005. "Transparency on the consumer side and tacit collusion," European Economic Review, Elsevier, vol. 49(2), pages 279-297, February.
    10. Schultz, Christian, 2004. "Market transparency and product differentiation," Economics Letters, Elsevier, vol. 83(2), pages 173-178, May.

    More about this item

    Keywords

    market transparency; customer switching; repeated oligopoly;

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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