We invite you at CADI, on Friday, 3rd June at 1800, to a workshop about competition starting from a text written by Sorin Cucerai.

The purpose of competition is the maximisation of the market share, not the well-being of the consumers, and this can be best observed in the case when the product is almost as good as the rival one, but a little cheaper. In this instance, the rational consumer has strong incentives to opt for the new product, at the cost of the existent one, even if the latter is superior from the point of view of quality. Therefore, we have a situation similar to the one described by the Gresham law, when the better product is out of the market because of the worse one.

On the other hand, between the producer and client there is an informational asymmetry: the producer knows exactly what and how he produced, while the client doesn’t. If the client can’t observe the difference between the real and the declared quality of the product, or, if he notice it, he finds it irrelevant, or if he considers it to be relevant, but it is more costly for him to ask for compensation than to accept the difference, then the rational entrepreneur will have strong incentive to be dishonest, since he will obtain more profit. Therefore, we find out another case of adverse selection, in which the honest competitors are taken out of the market by those that are dishonest.

Where are all these leading us? The ones hostile to the freedom of the market will reach the same conclusions as before they read this article. The rest of us, it ought to lead us to those mechanisms that can limit or even nullify the adverse selection phenomena that are produced by the free competition, so that the consumers can enjoy of the maximum quantity of benefits.

Program

18:00 Sorin Cucerai presents

18:20 Discussions

Text

Sorin Cucerai, 2009, „Concurenta ca selectie adversa„ based on three articles published in Financiarul.