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The Effect of Market Information on Market Prices

Author

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  • Khan, Abhimanyu
  • Pradhan, Sheersh

Abstract

Empirical studies on the effect of internet on market prices report that market prices have not always reduced in response to increased competition that is induced by the easily and relatively costlessly available market information. In this paper, we provide an explanation for why prices of all goods may not reduce, and in fact, price of some goods may even increase in presence of more market information. Market information not only induces stiffer competition amongst sellers but also makes for better matches between consumers and producers. While the former feature has a tendency to reduce prices, the latter feature may in fact cause prices to rise. The direction in which prices change as more information becomes available depends on the balance of these forces. We analyse this in context of a differentiated market, and characterise how prices change in response to freely available market information.

Suggested Citation

  • Khan, Abhimanyu & Pradhan, Sheersh, 2025. "The Effect of Market Information on Market Prices," MPRA Paper 123522, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:123522
    as

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    File URL: https://mpra.ub.uni-muenchen.de/123522/1/MPRA_paper_123522.pdf
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    References listed on IDEAS

    as
    1. Glenn Ellison & Sara Fisher Ellison, 2005. "Lessons About Markets from the Internet," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 139-158, Spring.
    2. Abhishek Nagaraj & Imke Reimers, 2023. "Digitization and the Market for Physical Works: Evidence from the Google Books Project," American Economic Journal: Economic Policy, American Economic Association, vol. 15(4), pages 428-458, November.
    3. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    5. Glenn Ellison & Sara Fisher Ellison, 2018. "Match Quality, Search, and the Internet Market for Used Books," NBER Working Papers 24197, National Bureau of Economic Research, Inc.
    6. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    price competition; product match; information; differentiated market;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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