Too Much of a Good Thing? Welfare Consequences of Market Transparency

Yiquan Gu and Burkhard Hehenkamp

Journal of Institutional and Theoretical Economics (JITE), 2014, vol. 170, issue 2, 225-248

Abstract: This paper studies welfare consequences of consumer-side market transparency with endogenous entry of firms. Different from most studies, we consider the unique symmetric entry equilibrium, which is in mixed strategies. We identify two effects of market transparency on welfare: a competition effect and a novel market-structure effect. We show, surprisingly, that for almost all demand functions the negative market-structure effect eventually dominates the positive competition effect as the market becomes increasingly transparent. Consumer-side market transparency can therefore be socially excessive even without collusion. The only exception among commonly used demand functions is the set of constant demand functions.

JEL-codes: D43 L13 L15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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DOI: 10.1628/093245613X13895979380392

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