Working Paper: CEPR ID: DP9397
Authors: Thomas Gehrig; Rune Stenbacka
Abstract: We apply a reduced form representation of product market competition, facilitating an explicit characterization of the equilibrium investments in consumer-specific screening. The effects of market structure on screening incentives depend on the microstructure of the imperfect screening technology and on the characteristics of the pool of consumers. We conduct a welfare analysis, which reveals that the microstructure of the screening technology and the characteristics of the pool of consumers determine whether there are private incentives for overinvestment or underinvestment in screening. Furthermore, we show that the introduction of screening competition amplifies market failures associated with screening investments.
Keywords: Imperfect Competition; Imperfect Screening
JEL Codes: D43; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| competition (L13) | total investments in screening (type I errors) (G31) |
| competition (L13) | total investments in screening (type II errors) (G31) |
| screening technology microstructure (L63) | total investments in screening (G31) |
| consumer pool characteristics (D12) | total investments in screening (G31) |
| private incentives to invest in screening (G31) | social incentives to invest in screening (type I errors) (G41) |
| private incentives to invest in screening (G31) | social incentives to invest in screening (type II errors) (G41) |