Thomas Gehrig (Institut zur Erforschung der wirtschaftlichen Entwicklung, Albert-Ludwigs-Universität) Werner Gueth (Max Planck Institute of Economics) Rene Levinsky () (Max Planck Institute of Economics)
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In a market with stochastic demand at most one seller can acquire costly information about demand. Other sellers entertain idiosyncratic beliefs about the market demand and the probability that an informed seller is trading in the market. These idiosyncratic beliefs co-evolve with the potential insider's inclination to acquire information. True demand expectations are not evolutionarily stable when beliefs, via revelation, can be used to commit to more aggressive behavior. The commitment effect fades away in large markets and has the same direction for both strategic substitutes and complements. Whether one observes an insider, in the long run, depends on information costs. For strategic substitutes insider activity benefits the whole population whereas the uninformed sellers could gain even more than the insider.
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Find related papers by JEL classification: C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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