IAAEU members Laszlo Goerke and Alberto Palermo with Marco de Pinto (formerly also at the IAAEU and Trier University, now at the University of Applied Labour Studies in Mannheim) published a paper “On the Welfare Effect of Adverse Selection in Oligopolistic Markets” in Games and Economic Behavior.
The paper theoretically examines the welfare consequences of asymmetric information in a principal-agent relationship where several principals (firms) compete in an (oligopolistic) product market. The main finding is that the existence of asymmetric information can compensate for the welfare-reducing impact of market power. Therefore, society can be better off in the presence of asymmetric information than in its absence. The underlying idea is that the better-informed agents exploit the informational advantage to enhance their own at the expense of the society’s payoff. The oligopolistic market power of principals limits such opportunities. Given that oligopoly is a typical market structure, the findings by the IAAEU researchers suggest that policy measures to counter market power should account for informational frictions, as the latter are also widespread.
Reference: de Pinto, Marco, Goerke, Laszlo and Alberto Palermo (2023), On the Welfare Effect of Adverse Selection in Oligopolistic Markets, Games and Economic Behavior, Vol. 138, pp. 22-41.
The paper theoretically examines the welfare consequences of asymmetric information in a principal-agent relationship where several principals (firms) compete in an (oligopolistic) product market. The main finding is that the existence of asymmetric information can compensate for the welfare-reducing impact of market power. Therefore, society can be better off in the presence of asymmetric information than in its absence. The underlying idea is that the better-informed agents exploit the informational advantage to enhance their own at the expense of the society’s payoff. The oligopolistic market power of principals limits such opportunities. Given that oligopoly is a typical market structure, the findings by the IAAEU researchers suggest that policy measures to counter market power should account for informational frictions, as the latter are also widespread.
Reference: de Pinto, Marco, Goerke, Laszlo and Alberto Palermo (2023), On the Welfare Effect of Adverse Selection in Oligopolistic Markets, Games and Economic Behavior, Vol. 138, pp. 22-41.
