Business intelligence and multi-market competition
AbstractWe consider a multimarket framework where a set of firms compete on two oligopolistic markets. The cost of production of each firm allows for spillovers accross markets, ensuring that output decisions for both markets have to be made jointly. Prior to competing in these markets, firms can establish links gathering business intelligence about other firms. These links have two effects. First, the quality of the good produced by the firm which forms the link increases. Second, the quality of the good of the firm which receives the link decreases. We characterize the business intelligence equilibrium networks and networks that maximize social welfare under the most interesting scenario of diseconomies of scope. We that due to externalities, the equilibrium networks may be over-connected relative to socially optimal networks creating a role for policy intervention. We also find that in some situations firms may refrain from gathering information, even if it is costlesss. Moreover, even though intelligence gathering leads to increased product quality, there exist situations where it is detrimental to both consumer welfare and social welfare.
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Bibliographic InfoPaper provided by Grenoble Applied Economics Laboratory (GAEL) in its series Working Papers with number 2013-04.
Date of creation: 2013
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OLIGOPOLY; MULTIMARKET; NETWORKS;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
- NEP-BEC-2013-07-15 (Business Economics)
- NEP-COM-2013-07-15 (Industrial Competition)
- NEP-MIC-2013-07-15 (Microeconomics)
- NEP-NET-2013-07-15 (Network Economics)
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