Transparency and Product Variety
We study the long run e¤ects of transparency in a circular town model of a differentiated market. The market is not fully transparent on the consumer side: A fraction of consumers are uninformed about prices. Increasing transparency reduces the equilibrium price, profit and entry of firms. This improves welfare. If consumers' transportation cost is high, it also improves the average utility of consumers. When transportation costs are very small, the fully transparent market features cut throat competition if there are several firms in the market, and if firms choose pure entry strategies only one firm enters and acts like a monopolist. Consumers therefore prefer that market transparency is as high as possible under the restriction that the market should allow entry for two firms. If firms choose mixed entry strategies, consumers prefer full transparency.
|Date of creation:||Nov 2007|
|Contact details of provider:|| Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark|
Phone: (0045) 35 32 30 54
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk/cie/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Boone, Jan & Pottersz, Jan, 2006.
"Transparency and prices with imperfect substitutes,"
Elsevier, vol. 93(3), pages 398-404, December.
- Boone, J. & Potters, J.J.M., 2006. "Transparency and prices with imperfect substitutes," Other publications TiSEM 6a5b84ad-f159-4378-a8b9-1, Tilburg University, School of Economics and Management.
- Corsetti, Giancarlo & Devereux, Michael P. & Guiso, Luigi & Hassler, John & Saint-Paul, Gilles & Sinn, Hans-Werner & Sturm, Jan-Egbert & Vives, Xavier, 2010. "The European economy," Munich Reprints in Economics 20104, University of Munich, Department of Economics.
- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
- Dudey, Marc, 1990. "Competition by Choice: The Effect of Consumer Search on Firm Location Decisions," American Economic Review, American Economic Association, vol. 80(5), pages 1092-1104, December.
- Bester, Helmut & Petrakis, Emmanuel, 1995. "Price competition and advertising in oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1075-1088, June.
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Stahl, Konrad, 1982. "Differentiated Products, Consumer Search, and Locational Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 97-113, September.
- Asher Wolinsky, 1984. "Product Differentiation with Imperfect Information," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 53-61.
- Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
- David Dranove & Mark A. Satterthwaite, 1992. "Monopolistic Competition When Price and Quality are Imperfectly Observable," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 518-534, Winter.
- Jeffrey H. Fischer & Joseph E. Harrington Jr., 1996. "Product Variety and Firm Agglomeration," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 281-309, Summer.
- Helmut Bester, 1998. "Quality Uncertainty Mitigates Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 828-844, Winter.
- Schultz, Christian, 2004.
"Market transparency and product differentiation,"
Elsevier, vol. 83(2), pages 173-178, May.
- Armstrong, Mark & Chen, Yongmin, 2007.
"Inattentive Consumers and Product Quality,"
4797, University Library of Munich, Germany.
- Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
- Anderson, Simon P. & Engers, Maxim, 2007.
"Participation games: Market entry, coordination, and the beautiful blonde,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 63(1), pages 120-137, May.
- Anderson, Simon P & Engers, Maxim, 2005. "Participation Games: Market Entry, Coordination and the Beautiful Blonde," CEPR Discussion Papers 5241, C.E.P.R. Discussion Papers.
- Vettas, Nikolaos, 2000. "On entry, exit, and coordination with mixed strategies," European Economic Review, Elsevier, vol. 44(8), pages 1557-1576, August.
- Yuk-Shee Chan & Hayne Leland, 1982. "Prices and Qualities in Markets with Costly Information," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 499-516.
- Schultz, Christian, 2005. "Transparency on the consumer side and tacit collusion," European Economic Review, Elsevier, vol. 49(2), pages 279-297, February.
When requesting a correction, please mention this item's handle: RePEc:kud:kuieci:2007-13. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.