Experimentation, Information sharing and Oligopoly Limit Pricing

The paper examines incumbents’ incentives to share information in the presence of entry threat when incumbents face uncertainty about their cost functions. Similar to the experimentation and learning literature, firms in this model can learn more about their costs through output production which simultaneously produces information. I find that in the presence of entry threat, information sharing may not emerge as an equilibrium outcome although information sharing enables firms to actually deter entry through better coordination of strategies. The learning effect of information production plays a crucial role in determining firms’ incentives to share. Both the sharing and non-sharing equilibria are characterised by downward price distortions, whereas entry takes place with a positive probability only in a non-sharing equilibrium.