The Inefficiency of Market Transparency – A Model with Endogenous Entry

26 Pages Posted: 19 Nov 2010

See all articles by Yiquan Gu

Yiquan Gu

University of Dortmund

Burkhard Hehenkamp

University of Paderborn

Date Written: November 19, 2010

Abstract

Including the entry decision in a Bertrand model with imperfectly informed consumers, we introduce a trade-off at the level of social welfare. On the one hand, market transparency is beneficial when the number of firms is exogenously given. On the other, a higher degree of market transparency implies lower profits and hence makes it less attractive to enter the market in the first place. It turns out that the second effect dominates: too much market transparency has a detrimental effect on consumer surplus and on social welfare.

Keywords: Market Transparency, Endogenous Entry, Homogenous Products

JEL Classification: D43, L13, L15

Suggested Citation

Gu, Yiquan and Hehenkamp, Burkhard, The Inefficiency of Market Transparency – A Model with Endogenous Entry (November 19, 2010). Ruhr Economic Paper No. 219, Available at SSRN: https://ssrn.com/abstract=1711855 or http://dx.doi.org/10.2139/ssrn.1711855

Yiquan Gu

University of Dortmund ( email )

Dortmund, D-44221
Germany

Burkhard Hehenkamp (Contact Author)

University of Paderborn ( email )

Warburger Str. 100
D-33098 Paderborn
United States

HOME PAGE: http://wiwi.uni-paderborn.de/dep4/lehrstuhl-prof-dr-hehenkamp/

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