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Information Value Under Demand Uncertainty And Endogenous Market Leadership

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  • Scott M. Gilpatric
  • Youping Li

Abstract

In an oligopoly model with firms choosing to produce in one of two periods, we identify the circumstance under which a firm's having early information regarding stochastic demand results in market leadership. High demand volatility leads to Stackelberg competition with the information‐advantaged firm leading. In the N‐firm case an equilibrium with multiple leaders and multiple followers emerges endogenously. In a duopoly information acquisition game we identify conditions that determine whether neither, one, or both firms will pay to acquire early information and note that one firm's obtaining early information may generate a positive externality benefitting its competitor. Both symmetric and asymmetric outcomes are possible and Stackelberg market leadership may occur in equilibrium, but only when firms have different costs of information. Our finding that an information advantage may convey leadership which then affects the value of information to the players applies to other settings exhibiting first‐mover advantage such as certain public good provision games. (JEL C72, D82, L13)

Suggested Citation

  • Scott M. Gilpatric & Youping Li, 2015. "Information Value Under Demand Uncertainty And Endogenous Market Leadership," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 589-603, January.
    • Handle: RePEc:bla:ecinqu:v:53:y:2015:i:1:p:589-603
    DOI: 10.1111/ecin.12119
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    References listed on IDEAS

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    Cited by:

    1. Lenhard, Severin, 2022. "Imperfect Competition with Costly Disposal," VfS Annual Conference 2022 (Basel): Big Data in Economics 264038, Verein für Socialpolitik / German Economic Association.
    2. Scott M. Gilpatric & Youping Li, 2016. "Endogenous Price Leadership and the Strategic Acquisition of Information," Southern Economic Journal, John Wiley & Sons, vol. 82(3), pages 859-873, January.
    3. Lenhard, Severin, 2022. "Imperfect competition with costly disposal," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    4. Li, Youping, 2014. "Price leadership in a vertically differentiated market," Economic Modelling, Elsevier, vol. 38(C), pages 67-70.
    5. Severin Lenhard, 2021. "Imperfect Competition with Costly Disposal," Diskussionsschriften dp2105, Universitaet Bern, Departement Volkswirtschaft.
    6. Scott M. Gilpatric & Youping Li, 2021. "Endogenous Price Leadership and Product Positioning," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(2), pages 287-302, March.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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