Transparency and Product Variety
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Transparency and Product Variety. / Schultz, Christian.
Centre for Industrial Economics, Department of Economics, University of Copenhagen, 2007.Research output: Working paper › Research
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TY - UNPB
T1 - Transparency and Product Variety
AU - Schultz, Christian
N1 - JEL Classification: L13, L15, L40
PY - 2007
Y1 - 2007
N2 - We study the long run e¤ects of transparency in a circular town model of a differentiated market. The market is not fully transparent on the consumer side: A fraction of consumers are uninformed about prices. Increasing transparency reduces the equilibrium price, profit and entry of firms. This improves welfare. If consumers' transportation cost is high, it also improves the average utility of consumers. When transportation costs are very small, the fully transparent market features cut throat competition if there are several firms in the market, and if firms choose pure entry strategies only one firm enters and acts like a monopolist. Consumers therefore prefer that market transparency is as high as possible under the restriction that the market should allow entry for two firms. If firms choose mixed entry strategies, consumers prefer full transparency
AB - We study the long run e¤ects of transparency in a circular town model of a differentiated market. The market is not fully transparent on the consumer side: A fraction of consumers are uninformed about prices. Increasing transparency reduces the equilibrium price, profit and entry of firms. This improves welfare. If consumers' transportation cost is high, it also improves the average utility of consumers. When transportation costs are very small, the fully transparent market features cut throat competition if there are several firms in the market, and if firms choose pure entry strategies only one firm enters and acts like a monopolist. Consumers therefore prefer that market transparency is as high as possible under the restriction that the market should allow entry for two firms. If firms choose mixed entry strategies, consumers prefer full transparency
KW - Faculty of Social Sciences
KW - product differentiation
KW - competition policy
M3 - Working paper
BT - Transparency and Product Variety
PB - Centre for Industrial Economics, Department of Economics, University of Copenhagen
ER -
ID: 1632756