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Tjalling de Vries Ministry of Economic Affairs. Transparency, prices and consumer welfare. a policy makers view. ENCORE workshop June 5, 2003. Main points Boone & Potters. Usual belief in the benefits of increasing transparency does not hold in all situations.

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A policy makers view

Tjalling de Vries

Ministry of Economic Affairs

Transparency, prices and consumer welfare

a policy makers view

ENCORE workshop June 5, 2003


Main points Boone & Potters

  • Usual belief in the benefits of increasing transparency does not hold in all situations.

  • Competition effect: perfect substitutes, constant return to scale.Demand effect: imperfect substitutes, decreasing return to scale

  • Demand effect can dominate Competition effect

  • More transparency increases price dispersion


Opinion

  • Still, in most markets an increase in transparency leads to better competition and to better results.

  • However I agree, under certain conditions an increase in transparency does not necessarily lead to lower prices and more consumer welfare.

  • But how convincing are the examples Jan Boone uses to prove his argument?

  • And should the results of the demand effect always be viewed as ‘bad’ results?


Examples
Examples

  • Introduction of the Internet: - the second hand car

  • Institutional supply constraints: - the secondopinion


Questions
Questions

  • What’s the impact of the described demand effect?

  • Bottom-line: consumer welfare or social welfare?

  • Market conditions causing collusion effect (Møllgaard) vs demand effect (Boone)?

  • Increase in price dispersion vs transition period for changing markets?


How can i explain this
How can I explain this:

Consumer s’utility functions=

and

To


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