Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 298: Transparency and Competition

Arvid Nilsson
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Arvid Nilsson: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: This paper examines the effects of search costs on prices in a Bertrand duopoly. It is shown that if the search cost is lowered, the expected price goes down in a single play of the stage game. However, if the game is repeated it may be easier to sustain collusion the lower the search cost. In other words increased transparency may facilitate collusion even if the sellers' information is unaffected. A transitory improvement of price transparency unambiguously leads to lower prices. Hence, the model provides theoretical support for the price publication practices of consumers' councils.

Keywords: Bertrand Oligopoly; Collusion; Competition Policy; Imperfect Information; Transparency

JEL-codes: C72; C73; L13; L41

22 pages, First version: February 4, 1999. Revised: November 29, 1999. Earlier revisions: November 29, 1999.

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