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The Advantages of Imprecise Information

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  • Esther Gal-Or

Abstract

A firm in a duopolistic market in which there is incomplete information about cost may benefit from having less precise prior information than its competitor. Experience in production provides firms with internally generated private signals about cost. As a result, the marginal return to production includes the value of information as well as the marginal revenue of production. Hence, the firm with less information about cost has the greater incentive to produce. Imprecise prior information thus provides a mechanism that enables the firm to commit to expand production relative to its rival.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 19 (1988)
Issue (Month): 2 (Summer)
Pages: 266-275

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Handle: RePEc:rje:randje:v:19:y:1988:i:summer:p:266-275

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Cited by:
  1. Thomas Gehrig & Werner Güth & René Levínský, 2013. "On insider trading and belief evolution," Journal of Evolutionary Economics, Springer, Springer, vol. 23(4), pages 767-781, September.
  2. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Imperfect competition and quality signalling," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 39(1), pages 163-183.
  3. Neubauer, Silke, 1997. "Interdivisional information sharing: the strategic advantage of knowing nothing," Discussion Papers, Research Unit: Market Dynamics, Social Science Research Center Berlin (WZB) FS IV 97-33, Social Science Research Center Berlin (WZB).
  4. Tim Willems, 2013. "Actively Learning by Pricing: A Model of an Experimenting Seller," Economics Series Working Papers, University of Oxford, Department of Economics 687, University of Oxford, Department of Economics.
  5. Lin, C.-Y. Cynthia & Muehlegger, Erich J., 2013. "On the use of heuristics to approximate competitors’ private information," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 86(C), pages 10-23.
  6. Barrachina, Alex & Tauman, Yair & Urbano, Amparo, 2014. "Entry and espionage with noisy signals," Games and Economic Behavior, Elsevier, Elsevier, vol. 83(C), pages 127-146.
  7. Lin, C.-Y. Cynthia & Muelegger, Erich, 2007. "Using Approximations to Competitors’ Private Information: An Application of Cognitive Costs to Strategic Behavior," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp07-025, Harvard University, John F. Kennedy School of Government.

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