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Strategic Manipulation and Information Market Microstructure

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  • Partha Gangopadhyay

Abstract

This paper presents a model of strategic manipulation in the context of an informational duopoly. The fact that market manipulation by these duopolists may affect their cost and demand structures implies that they can strategically manipulate the market in order to influence the information market equilibrium. This paper derives an equilibrium manipulation and establishes important comparative‐static properties that may characterise such markets. The informational duopoly is beset with two types of inefficiency: first, market imperfections drive a wedge between the marginal cost and the market price leading to the usual deadweight loss. Secondly, an act of manipulation raises the marginal cost of production and, thereby, causes further welfare loss in such markets. We provide a complete characterisation of an optimal mechanism that can stem the welfare loss in informational markets.

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  • Partha Gangopadhyay, 2004. "Strategic Manipulation and Information Market Microstructure," Australian Economic Papers, Wiley Blackwell, vol. 43(1), pages 75-86, March.
    • Handle: RePEc:bla:ausecp:v:43:y:2004:i:1:p:75-86
    DOI: 10.1111/j.1467-8454.2004.00217.x
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    Cited by:

    1. Partha Gangopadhyay & Takemi Fujikawa & Yohei Kobayashi, 2013. "Why Is It So Difficult to Optimally Choose Innovation? Lest We Forget the Real World," Modern Applied Science, Canadian Center of Science and Education, vol. 7(5), pages 1-39, May.
    2. Gangopadhyay Partha, 2008. "Irrationality, Non-equilibrium Conflict and Complex Dynamics," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 13(2), pages 1-15, January.

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