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Noise and competition in strategic oligopoly

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  • Dridi, Ramdan
  • Germain, Laurent

Abstract

In this paper, we propose a model where N strategic informed traders who are endowed with heterogeneous noisy signals with different precisions compete in a market with a single risky asset. We explicitly describe the unique linear equilibrium that exists in this setup and derive its properties. Moreover, we focus on the effects of noise on the competition between traders. We show that noise softens the competition between traders. In particular, for N exceeding three and for certain sets of noise in traders' signals, each trader's individual profit is greater than the one obtained in the case of perfect information.

Suggested Citation

  • Dridi, Ramdan & Germain, Laurent, 2009. "Noise and competition in strategic oligopoly," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 311-327, April.
    • Handle: RePEc:eee:jfinin:v:18:y:2009:i:2:p:311-327
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    References listed on IDEAS

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    Cited by:

    1. Boco, Hervé & Germain, Laurent & Rousseau, Fabrice, 2016. "Heterogeneous noisy beliefs and dynamic competition in financial markets," Economic Modelling, Elsevier, vol. 54(C), pages 347-363.
    2. Fabrice Rousseau & Hervé Boco & Laurent Germain, 2015. "Heterogeneous Beliefs and Imperfect Competition in Sequential Auction Markets," Economics Department Working Paper Series n258-15.pdf, Department of Economics, National University of Ireland - Maynooth.
    3. Fabrice Rousseau & Herve Boco & Laurent Germain, 2020. "High Frequency Trading: Strategic Competition Between Slow and Fast Traders," Economics Department Working Paper Series n296-20.pdf, Department of Economics, National University of Ireland - Maynooth.

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