Market Power, Information and Efficiency: The Link between Solutions and Equilibrium Distortions

Julianne Nelson

Journal of Industrial Economics, 1993, vol. 41, issue 3, 277-93

Abstract: The extent of competition generally determines both the location and the extent of distortions due to information asymmetries. When agents have private information, increased competition raises agent welfare at the expense of uninformed principals. Nevertheless, increased competition among principals may lower total surplus: the losses sustained by principals as a group exceed the benefits realized by agents as a group when there is a sufficiently large proportion of agents with high cost of agent effort. These results are independent of the correlation between the agent's marginal cost and the principal's marginal benefit of agent effort. Copyright 1993 by Blackwell Publishing Ltd.

Date: 1993
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