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The Effects of the Asymmetry of Information Intrafirms on Oligopolistic Market Outcomes

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Author Info

  • Testuya Shinkai

    ()
    (Kwansei Gakuin University)

  • Makoto Okamura

    (Hiroshima University)

Abstract

We consider an oligopoly with a principal-agent relationship, in which a firm's marginal cost is decreasing in a manager's managerial effort and is subject to an additive uncertainty. Two types of firms operate: one displays symmetric information between the owner and the manager, another presents asymmetric information. We show that if the marginal cost's derivative of the manager is sufficiently small, then the expected effort level in an asymmetric information firm exceeds that in a symmetric one. We also show that the expected total output and consumer surplus may reduce at equilibrium, as the number of symmetric information firms increases.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp29.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 29.

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Length: 25 pages
Date of creation: Apr 2006
Date of revision: Apr 2006
Handle: RePEc:kgu:wpaper:29

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Keywords: asymmetric information; incentive scheme; competition effort; oligopoly;

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  1. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
  2. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
  3. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
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