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Exchange of private demand information by simultaneous signaling

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  • Stadler, Manfred

Abstract

As is well-known from the literature on oligopolistic competition with incomplete information, firms have an incentive to share private demand information. However, by assuming verifiability of demand data, these models ignore the possibility of strategic misinformation. We show that if firms can send misleading demand information, they will do so. Furthermore, we derive a costly signaling mechanism implementing demand revelation, even without verifiability. For the case of a gamma distribution of the firms' demand variables, we prove that the expected gross gains from information revelation exceed the expected cost of signaling if the skewness of the distribution is sufficiently large and the products are sufficiently differentiated. --

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Paper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 17.

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Date of creation: 2011
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Handle: RePEc:zbw:tuewef:17

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Keywords: Information sharing; simultaneous signaling; demand uncertainty;

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  1. Shapiro, Carl, 1986. "Exchange of Cost Information in Oligopoly," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(3), pages 433-46, July.
  2. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
  3. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, Econometric Society, vol. 53(2), pages 329-43, March.
  4. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, Elsevier, vol. 71(1), pages 260-288, October.
  5. Mailath, George J, 1989. "Simultaneous Signaling in an Oligopoly Model," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(2), pages 417-27, May.
  6. Amir Ziv, 1993. "Information Sharing in Oligopoly: The Truth-Telling Problem," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 455-465, Autumn.
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