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Communication in Cournot Oligopoly

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Abstract

We study communication in a static Cournot duopoly model under the assumption that the firms have unverifiable private information about their costs. We show that cheap talk between the firms cannot transmit any information. However, if the firms can communicate through a third party, communication can be informative even when it is not substantiated by any commitment or costly actions. We exhibit a simple mechanism that ensures informative communication and interim Pareto dominates the uninformative equilibrium for the firms.

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Bibliographic Info

Paper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 20121.

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Date of creation: 2012
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Handle: RePEc:uwo:uwowop:20121

Contact details of provider:
Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html

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Keywords: Cournot oligopoly; communication; information; cheap talk; mediation;

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References

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  1. Sandeep Baliga & Tomas Sjostrom, 2003. "Arms Races and Negotiations," Levine's Working Paper Archive 618897000000000766, David K. Levine.
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  3. Johannes Horner & Massimo Morelli & Francesco Squintani, 2010. "Mediation and Peace," Levine's Working Paper Archive 661465000000000133, David K. Levine.
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  9. Gossner, Olivier & Vieille, Nicolas, 2001. "Repeated Communication Through the Mechanism And," Economics Papers from University Paris Dauphine 123456789/6031, Paris Dauphine University.
  10. Subir K. Chakrabarti, 2010. "Collusive Equilibrium In Cournot Oligopolies With Unknown Costs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1209-1238, November.
  11. Okuno-Fujiwara, Masahiro & Postlewaite, Andrew & Suzumura, Kotaro, 1990. "Strategic Information Revelation," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 25-47, January.
  12. Watson, Joel, 1996. "Information Transmission When the Informed Party Is Confused," Games and Economic Behavior, Elsevier, vol. 12(1), pages 143-161, January.
  13. GOSSNER , Olivier & VIEILLE, Nicolas, 1998. "Repeated communication through the mechanism “and”," CORE Discussion Papers 1998056, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  14. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  15. Liu, Luchuan, 1996. "Correlated Equilibrium of Cournot Oligopoly Competition," Journal of Economic Theory, Elsevier, vol. 68(2), pages 544-548, February.
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  17. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
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Cited by:
  1. Chirantan Ganguly & Indrajit Ray, 2013. "Information-Revelation and Coordination Using Cheap Talk in a Battle of the Sexes with Two-Sided Private Information," Discussion Papers 13-01r, Department of Economics, University of Birmingham.

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