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Imperfect Information and the Equitability of Competitive Prices

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  • Richard Schmalensee

Abstract

In many markets, sellers have imperfect information about the costs of sales to different buyers, and the pattern of competitive pricing depends on the information available. In order to analyze the equity implications of public policies requiring information suppression, non-utilitarian measures of the horizontal and vertical dimensions of pricing inequity caused by cross-subsidization are proposed and examined. Better information generally reduces vertical inequity, but if information about buyers is initially poor, additional imperfect information may increase horizontal inequity. If information is initially good, more information generally lowers both dimensions of inequity.

Suggested Citation

  • Richard Schmalensee, 1984. "Imperfect Information and the Equitability of Competitive Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(3), pages 441-460.
    • Handle: RePEc:oup:qjecon:v:99:y:1984:i:3:p:441-460.
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    File URL: http://hdl.handle.net/10.2307/1885959
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    Cited by:

    1. Puelz, Robert & Snow, Arthur, 1994. "Evidence on Adverse Selection: Equilibrium Signaling and Cross-Subsidization in the Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 236-257, April.
    2. Luigi Buzzacchi & Tommaso Valletti, 2005. "Strategic Price Discrimination in Compulsory Insurance Markets," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 30(1), pages 71-97, June.
    3. Michael Hoy & Michael Ruse, 2005. "Regulating Genetic Information in Insurance Markets," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 8(2), pages 211-237, September.
    4. Louis Kaplow, 1985. "Horizontal Equity: Measures in Search of a Principle," NBER Working Papers 1679, National Bureau of Economic Research, Inc.
    5. Keith J. Crocker, 2024. "The role of normative analysis in markets with hidden knowledge and hidden actions," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 49(2), pages 163-180, September.
    6. Ron Cheung & Cassandra R. Cole & David A. Macpherson & Kathleen A. McCullough & Charles Nyce, 2015. "Demographic Factors and Price Distortions in Insurance," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 18(1), pages 1-28, March.

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