The Effect of Market Information on Market Prices

Abhimanyu Khan and Sheersh Pradhan

MPRA Paper from University Library of Munich, Germany

Abstract: Empirical studies on the effect of internet on market prices report that market prices have not always reduced in response to increased competition that is induced by the easily and relatively costlessly available market information. In this paper, we provide an explanation for why prices of all goods may not reduce, and in fact, price of some goods may even increase in presence of more market information. Market information not only induces stiffer competition amongst sellers but also makes for better matches between consumers and producers. While the former feature has a tendency to reduce prices, the latter feature may in fact cause prices to rise. The direction in which prices change as more information becomes available depends on the balance of these forces. We analyse this in context of a differentiated market, and characterise how prices change in response to freely available market information.

Keywords: price competition; product match; information; differentiated market (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2025-02-01
New Economics Papers: this item is included in nep-com, nep-cta, nep-ind and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:123522

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