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Information Sharing in Oligopoly: The Truth-Telling Problem

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Author Info
Amir Ziv
Abstract

While under some circumstances information sharing in oligopoly may be beneficial, the literature ignores the possibility of strategic information sharing by assuming verifiability of data. I endogenize the incentives for truthful information sharing and prove that if firms have the ability to send misleading information, they will always do. To overcome this problem I introduce a (costly) mechanism through which the firm will, in its own best interest, reveal the true value of its private information, even though outside verification is impossible. I show that in some cases benefits from information sharing exceed the signalling costs, while in other cases the reverse is true. The fact that I model a two-sided signalling enables me to mitigate the signalling-cost problem. Rather than burning money, oligopolistic rivals may exchange transfer payments, thereby significantly reducing signalling costs.

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

Volume (Year): 24 (1993)
Issue (Month): 3 (Autumn)
Pages: 455-465
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Handle: RePEc:rje:randje:v:24:y:1993:i:autumn:p:455-465

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  1. Hueth, Brent & Marcoul, Philippe, 2002. "Information Sharing and Oligopoly in Agricultural Markets: The Role of Bargaining Associations," Staff General Research Papers 10029, Iowa State University, Department of Economics.
    Other versions:
  2. Maura P. Doyle & Christopher M. Snyder, 1997. "Information sharing and competition in the motor vehicle industry," Finance and Economics Discussion Series 1997-4, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. Esther Gal-Or & Anindya Ghose, 2005. "The Economic Incentives for Sharing Security Information," Industrial Organization 0503004, EconWPA. [Downloadable!]
  4. Stephan O. Hornig & Manfred Stadler, 2006. "On the robustness of concealing cost information in oligopoly," Economics Bulletin, Economics Bulletin, vol. 12(9), pages 1-10. [Downloadable!]
  5. Gea M. Lee, 2004. "Collusion with Internal Contracting," Econometric Society 2004 Far Eastern Meetings 693, Econometric Society. [Downloadable!]
  6. Iván Major, 2006. "Why do (or do not) banks share customer information? A comparison of mature private credit markets and markets in transition," IEHAS Discussion Papers 0603, Institute of Economics, Hungarian Academy of Sciences, revised 24 Apr 2006. [Downloadable!]
  7. Andrew F. Daughety, 2006. "Cournot Competition," Working Papers 0620, Department of Economics, Vanderbilt University. [Downloadable!]
  8. Montserrat Ferré, 2004. "Multilateral surveillance in the Stability and Growth Pact: an analysis through information sharing," Economics Bulletin, Economics Bulletin, vol. 5(15), pages 1-7. [Downloadable!]
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