When is more competition bad?

Jan 11 15:01 2019 Print This Article

Contrary to popular belief, standard economic theory does not provide a theoretical foundation for the notion that "competition is everywhere and always good." It turns out that legislation that promotes competition among producers may improve consumer welfare. Or it may not. As so many things in economics (and in life), it all depends.I recently came across an interesting paper demonstrating this idea by Ben Lester, Ali Shourideh, Venky Venkateswaran, and Ariel Zetlin-Jones with the title "Screening and Adverse Selection in Frictional Markets," forthcoming in the Journal of Political Economy.The paper is written in the standard trade language. Like any trade language, it's difficult to understand if you're not in the trade! But I thought the idea sufficiently important that I asked Ben to translate the basic results and findings for a lay audience. I'm glad to say he was very happy to oblige.And so, without further ado, today's guest post by Ben Lester, my colleague at the Philadelphia Fed.You can follow Ben on Twitter :  @benjamminlester 

Read More

About Article Author

MacroMania

David Andolfatto is the Vice President of Economic Research Federal Reserve Bank of St. Louis. He has a PhD in Economics from University of Western Ontario and his areas of interest are Dynamic General Equilibrium Theory, Macroeconomics, Labor Markets, Monetary Theory.

Related Items

US REITs Suffer Biggest Weekly Loss So Far In 2019

Real estate investment trusts (REITs) in the US tumbled last week, posting the biggest setback for the major asset classes during the shortened trading week that ended on April 18, based on a set of exchange traded funds. The loss, the deepest for this corner of the market since a plunge late last ...

EUR/USD – Euro yawing on Easter Monday, but U.S oil sanctions could rattle markets

German banks are closed for the Easter Monday holiday and EUR/USD is almost unchanged. Currently, the pair is trading at 1.1249, up 0.03% on the day. There are no German or eurozone events on the calendar. In the U.S., there is just one release. Existing home sales is expected to slow to 5.31 mill ...

Macro Briefing: 22 April 2019

Death toll in Easter bombing in Sri Lanka rises to 290: CNNTrump administration set to end waivers for nations importing Iranian oil: ReutersOil prices rise as market prepares for end of Iranian import waivers: CNBCComedian Zelensky wins presidency in Ukraine: BBCHouse Oversight Committee Chairman ...

Iran sanctions waivers hit sentiment in Asia

  Speculation that the US is about to announce the end to the Iran sanctions waivers later today boosted oil prices and took the shine off risk appetite that had remained buoyant into the close of trading last week.   Oil prices surge West Texas Intermediate (WTI) climbed 2.5% during  the Asian ...

US sanctions waiver Asia

Prepared by Jeff Halley, Senior Market Analyst   US sanctions waiver Asia Robust US retail data and a continuing positive procession of Q1 earnings data lifted Wall Street and the dollar on Friday. However, the bond market continues to be more circumspect among all the upbeat noise from earnings ...

Monday: Existing Home Sales

Weekend:• Schedule for Week of April 21, 2019Monday:• At 8:30 AM ET, Chicago Fed National Activity Index for March. This is a composite index of other data.• At 10:00 AM: Existing Home Sales for March from the National Association of Realtors (NAR). The consensus is for 5.30 million SAAR, down ...

Daily Markets Broadcast 2019-04-22

Daily Markets Broadcast 2019-04-22 Wall Street extends gains on strong retail sales US indices continued to rally on Thursday after retail sales data for March came in higher than expected. The US30 index has continued the rally in early trading this morning. Markets were closed on Friday and many ...

Robinson Crusoe and the Carbon Tax

Suppose I impose a carbon tax on Robinson Crusoe. But I give him a rebate exactly equal to the tax he pays. That tax plus rebate will have no effect on Robinson Crusoe's behaviour. He knows that if he cuts carbon by 1kg, and pays $1 less tax, his rebate also falls by $1, so his net tax (= tax minus ...