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Asymptotic Efficiency in Stackelberg Markets with Incomplete Information

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  • Jianbo Zhang
  • Zhentang Zhang
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    Abstract

    This paper examines the asymptotic (in)efficiency of Stackelberg markets with incomplete information. Firms who are early in the queue make their quantity choices based on limited information and their output choices are likely to deviate from those optimal under complete information. Due to the presence of both payoff externality and information externality, the output deviations of early firms have a lasting effect on all subsequent output decisions. Consequently, the total market output diverges from the competitive equilibrium output even as the number of firms goes to infinity. That is, Stackelberg markets with incomplete information are asymptotically inefficient with probability one. ZUSAMMENFASSUNG - (Asymptotische Effizienz in Stackelberg-Märkten mit unvollständiger Information) In diesem Beitrag wird die asymptotische (In-)Effizienz von Stackelberg-Märkten mit unvollständiger Information untersucht. Unternehmen, die frühzeitig auf den Markt kommen, bestimmen ihre Ausbringungsmengen unter unvollständiger Information. Aus diesem Grunde sind ihre Mengenentscheidungen im allgemeinen verschieden von den optimalen Ausbringungsmengen unter vollständiger Information. Auszahlungswirksame Externalitäten und Informationsexternalitäten bewirken, daß die Mengenentscheidungen der frühzeitig auf den Markt treffenden Unternehmen zu pfadabhängigen Mengen -entscheidungen nachfolgender Unternehmen führen. Im Ergebnis ist dann die gesamte Ausbringungsmenge aller Unternehmen verschieden von dem Konkurrenzgleichgewicht - selbst dann, wenn die Anzahl der Unternehmen gegen unendlich strebt. Das heißt, Stackelberg- Märkte mit unvollständiger Information sind asymptotisch ineffizient mit der Wahrscheinlichkeit eins.

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    Bibliographic Info

    Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 99-07.

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    Length: 32 pages
    Date of creation: May 1999
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    Publication status: Published in M. R. Baye/J. P. Nelson (eds.): Advances in Applied Microeconomics , Vol. 10, JAI, 2001, pp. 185-202.
    Handle: RePEc:wzb:wzebiv:fsiv99-07

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    1. Shapiro, Carl, 1986. "Exchange of Cost Information in Oligopoly," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 433-46, July.
    2. Milgrom, Paul R, 1979. "A Convergence Theorem for Competitive Bidding with Differential Information," Econometrica, Econometric Society, vol. 47(3), pages 679-88, May.
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    4. Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
    5. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
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    8. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
    9. Swinkels, Jeroen M, 1999. "Asymptotic Efficiency for Discriminatory Private Value Auctions," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 509-28, July.
    10. Gul, Faruk & Postlewaite, Andrew, 1992. "Asymptotic Efficiency in Large Exchange Economies with Asymmetric Information," Econometrica, Econometric Society, vol. 60(6), pages 1273-92, November.
    11. Mailath George J., 1993. "Endogenous Sequencing of Firm Decisions," Journal of Economic Theory, Elsevier, vol. 59(1), pages 169-182, February.
    12. Robson, Arthur J, 1990. "Stackelberg and Marshall," American Economic Review, American Economic Association, vol. 80(1), pages 69-82, March.
    13. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
    14. Vives, Xavier, 1988. "Aggregation of Information in Large Cournot Markets," Econometrica, Econometric Society, vol. 56(4), pages 851-76, July.
    15. Novshek, William, 1980. "Cournot Equilibrium with Free Entry," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 473-86, April.
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    Cited by:
    1. Xie, Danyang, 2010. "Subscription of shares," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 271-277, May.

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