Monday, December 24, 2018

Transparency Against Market Power

Felix Montag, Ludwig Maximilian University of Munich - Munich Graduate School of Economics (MGSE) and Christoph Winter, Ludwig Maximilian University of Munich - Munich Graduate School of Economics (MGSE) suggest Transparency Against Market Power.

ABSTRACT: Mandatory price disclosure can reduce market power from informational frictions. Economic theory suggests, however, that such measures can also harm consumers, because it might facilitate collusion. To better understand this relationship, we build a theoretical search model with collusion and imperfectly informed consumers and producers and identify under which circumstances increasing price transparency benefits consumers. We then use a novel and unique data set to study how mandatory price disclosure in the German petrol market affected retail margins. We find that this policy led to a decrease in retail margins by about 25%. This effect is robust to different identification strategies and persistent over time. Finally, we identify heterogeneities in the treatment effect and deduce under what conditions policy-makers should consider mandating price disclosure.

https://lawprofessors.typepad.com/antitrustprof_blog/2018/12/transparency-against-market-power.html

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