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COPY: Impacts of price information on market tructure

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Questions and Answers

What effect does improved observability of prices by sellers have on market outcomes?

It increases competition and raises consumer surplus
It has no impact on market outcomes
It enables tacit collusion and increases firm profits (correct)
It reduces competition and lowers firm profits

What is the potential outcome of firms randomizing prices within an interval to confuse consumers and competitors?

It increases competition and raises consumer surplus
It has no impact on market outcomes
It reduces competition and potentially leads to higher profits (correct)
It reduces profits and leads to lower prices

How does better observability of prices by buyers affect market competition and firm profits?

It increases market competition and decreases firm profits
It increases market competition and raises consumer surplus (correct)
It has no impact on market competition or firm profits
It decreases market competition and increases firm profits

What is the effect of imperfect observability of prices by buyers, where some can see all prices and others only one price?

<p>It leads to price dispersion where different firms set different prices (D)</p> Signup and view all the answers

How does transparency of prices affect the ability of firms to sustain higher prices through tacit collusion?

<p>Transparency makes it easier to sustain higher prices through tacit collusion (C)</p> Signup and view all the answers

Flashcards

Tacit Collusion

Sellers can coordinate their pricing without explicitly communicating, leading to higher profits.

Price Randomization

Firms randomly change prices within a range to confuse consumers and competitors, potentially leading to higher profits.

Price Transparency for Buyers

Buyers can easily compare prices, prompting firms to compete harder, lowering prices and benefiting consumers.

Price Dispersion

Some buyers see all prices, while others see only one, resulting in different prices charged by firms.

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Transparency and Tacit Collusion

Price transparency makes it easier for firms to collude and maintain higher prices, as deviations are easily detected.