Directorate for Financial, Fiscal and Enterprise Affairs Committee on Competition Law and Policy Price Transparency

Considering the discussion at the roundtable, the delegate submissions, and the background paper, a number of key points emerge. (1) As a general rule, increased price transparency will benefit buyers unless it results in considerably increased risks of collusion among sellers. One way to describe price transparency is to refer to the costs in time and money required to discover actual transactions prices (hereafter simply referred to as "prices" in contrast to "list prices"). The lower those costs, the more transparent the market. Considered in this light, a certain degree of price transparency is necessary for competition to exist since there would be little point in competing on price unless consumers are reasonably able to compare prices. In addition to its potential to increase competition, enhanced price transparency could benefit consumers by lowering search costs. This direct benefit helps explain why consumer organisations generally tend to favour greater price transparency. (2) Under certain conditions, increased price transparency can significantly increase the probabilities of conscious parallelism and anti-competitive coordination. Increased price transparency could help sellers engage in conscious parallelism which, although not illegal in most countries, nevertheless harms consumers. In a sufficiently concentrated market, the process could start by one seller simply raising its price and watching to see if others follow. The price leader's risks in doing that are lower when sellers are quickly and accurately informed of price changes, especially if buyers are not. Under those circumstances, the leader will not have to wait long to see if others will follow and stands to lose few customers in the interim. In addition to facilitating conscious parallelism, increased price transparency could also encourage tacit or outright collusion by generally making it easier for cooperating firms to detect and therefore punish deviating firms. Such "cheating" must somehow be deterred if coordinated anti-competitive pricing is to be sustained for any length of time. The competitive risks of increased price transparency, under certain market conditions, have not always been sufficiently appreciated by government policy makers. There have been instances where government mandated increases in price transparency seemed to have produced higher rather than lower prices, probably because they facilitated anti-competitive coordination among sellers. But in other cases some government sponsored increased price transparency may have led to enhanced price competition. The difference in outcomes reflects the importance of market conditions in determining the impact of changes in price transparency. DAFFE/CLP(2001)22 10 (3) Increased …