Implementing Efficient Market Structures: The Role of Information Transmission

Eberhard Feess () and Michael Paust

FinanzArchiv: Public Finance Analysis, 2015, vol. 71, issue 2, 240-277

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.

Keywords: information transmission; market structure; private information; regulation (search for similar items in EconPapers)
JEL-codes: D43 D45 D82 L13 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1628/001522108X14180267843162

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