Countervailing Power and Price Transparency

Morten Hviid and H. Peter Møllgaard

Scandinavian Journal of Economics, 2006, vol. 108, issue 3, pages 499-512

Abstract: We investigate whether improved transparency about prices may increase the countervailing power exercised by buyers of an intermediate good. In a model with an informed manufacturer that sells to both informed and uninformed firms, we show that full transparency cannot be part of equilibrium due to the strategic effect of the resulting informational spillover. Transparency policies introduce a distortion for informed segments and are unsuccessful in completely removing the distortion from the uninformed segment. Welfare effects are hence ambiguous and depend on the weight assigned to uninformed markets. Our results thus cast further doubt on the value of transparency. Copyright The editors of the "Scandinavian Journal of Economics" 2006 .

Date: 2006
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