Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Wednesday, December 5, 2012

Market Power, Fully Revealing Prices and Welfare

Posted by D. Daniel Sokol

Manuel Mueller-Frank, University of Oxford describes Market Power, Fully Revealing Prices and Welfare.

ABSTRACT: This paper considers a dynamic duopoly market with strategic, price setting firms and an infinite set of fully rational, privately informed consumers who enter the market sequentially. I show that there exists a sequential equilibrium in which prices converge to their realized product qualities, hence perfectly aggregating the privately held information. This fully revealing equilibrium is shown to be welfare inferior to a fixed price equilibrium in which perfect information aggregation might fail. Therefore, one has to be careful not to equate fully revealing prices with welfare optimality.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/12/market-power-fully-revealing-prices-and-welfare.html

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