IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v61y2018icp155-191.html
   My bibliography  Save this article

Information Acquisition, signaling and learning in duopoly

Author

Listed:
  • Jeitschko, Thomas D.
  • Liu, Ting
  • Wang, Tao

Abstract

We study firms’ incentives to acquire private information on cost in a duopoly signaling game. Firms first choose how much to invest in information acquisition and then engage in dynamic price competition. In equilibrium firms acquire too little information from the perspective of industry profit and the perspective of social welfare. We consider two policies that an industry trade association may institute in light of this: (i) the trade association invests directly to acquire private information for each firm, and (ii) firms individually invest in acquiring private information on their costs, and the trade association collects this information and disseminates it after first period prices have been set. Allowing the trade association to acquire information increases firms’ profits and may also increase consumer surplus. Information sharing eliminates firms’ signaling incentives, and as a result leads to more information acquisition by the firms and higher consumer surplus as well as higher social welfare. However, information sharing increases firms’ profits only when the ex ante uncertainty about cost is large, and it reduces profits otherwise.

Suggested Citation

  • Jeitschko, Thomas D. & Liu, Ting & Wang, Tao, 2018. "Information Acquisition, signaling and learning in duopoly," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 155-191.
  • Handle: RePEc:eee:indorg:v:61:y:2018:i:c:p:155-191
    DOI: 10.1016/j.ijindorg.2018.08.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718718300717
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ijindorg.2018.08.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mailath George J., 1993. "Endogenous Sequencing of Firm Decisions," Journal of Economic Theory, Elsevier, vol. 59(1), pages 169-182, February.
    2. Esther Gal-or, 1986. "Information Transmission—Cournot and Bertrand Equilibria," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 85-92.
    3. Mirman Leonard J. & Samuelson Larry & Schlee Edward E., 1994. "Strategic Information Manipulation in Duopolies," Journal of Economic Theory, Elsevier, vol. 62(2), pages 363-384, April.
    4. Dan Bernhardt & Bart Taub, 2015. "Learning about common and private values in oligopoly," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 66-85, March.
    5. Juan-José Ganuza & Jos Jansen, 2013. "Too Much Information Sharing? Welfare Effects of Sharing Acquired Cost Information in Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 61(4), pages 845-876, December.
    6. Jos Jansen, 2008. "Information Acquisition and Strategic Disclosure in Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 113-148, March.
    7. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
    8. Ramon Caminal & Xavier Vives, 1996. "Why Market Shares Matter: An Information-Based Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 221-239, Summer.
    9. Esther Gal-Or, 1988. "The Advantages of Imprecise Information," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 266-275, Summer.
    10. Lode Li, 1985. "Cournot Oligopoly with Information Sharing," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 521-536, Winter.
    11. Li, Lode & McKelvey, Richard D. & Page, Talbot, 1987. "Optimal research for cournot oligopolists," Journal of Economic Theory, Elsevier, vol. 42(1), pages 140-166, June.
    12. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-343, March.
    13. David P. Myatt & Chris Wallace, 2018. "Information Use and Acquisition in Price†setting Oligopolies," Economic Journal, Royal Economic Society, vol. 128(609), pages 845-886, March.
    14. Hwang, Hae-shin, 1995. "Information Acquisition and Relative Efficiency of Competitive, Oligopoly and Monopoly Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 325-340, May.
    15. George-Marios Angeletos & Alessandro Pavan, 2007. "Efficient Use of Information and Social Value of Information," Econometrica, Econometric Society, vol. 75(4), pages 1103-1142, July.
    16. Markus Christen, 2005. "Research Note---Cost Uncertainty Is Bliss: The Effect of Competition on the Acquisition of Cost Information for Pricing New Products," Management Science, INFORMS, vol. 51(4), pages 668-676, April.
    17. Luca Colombo & Gianluca Femminis & Alessandro Pavan, 2014. "Information Acquisition and Welfare," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1438-1483.
    18. Jin, Jim Y, 1994. "Information Sharing through Sales Report," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 323-333, September.
    19. Michael H. Riordan, 1985. "Imperfect Information and Dynamic Conjectural Variations," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 41-50, Spring.
    20. Jagmohan S. Raju & Abhik Roy, 2000. "Market Information and Firm Performance," Management Science, INFORMS, vol. 46(8), pages 1075-1084, August.
    21. Drew Fudenberg & Jean Tirole, 1986. "A "Signal-Jamming" Theory of Predation," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 366-376, Autumn.
    22. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October.
    23. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    24. Dan Sasaki, 2001. "The value of information in oligopoly with demand uncertainty," Journal of Economics, Springer, vol. 73(1), pages 1-23, February.
    25. Caminal, Ramon, 1990. "A Dynamic Duopoly Model with Asymmetric Information," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 315-333, March.
    26. Alessandro Bonatti & Gonzalo Cisternas & Juuso Toikka, 2017. "Dynamic Oligopoly with Incomplete Information," Review of Economic Studies, Oxford University Press, vol. 84(2), pages 503-546.
    27. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
    28. Hwang Hae-shin, 1993. "Optimal Information Acquisition for Heterogenous Duopoly Firms," Journal of Economic Theory, Elsevier, vol. 59(2), pages 385-402, April.
    29. Esther Gal-Or, 1987. "First Mover Disadvantages with Private Information," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 279-292.
    30. Myatt, David P. & Wallace, Chris, 2015. "Cournot competition and the social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 466-506.
    31. George J. Mailath, 1989. "Simultaneous Signaling in an Oligopoly Model," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 417-427.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bonnet, Céline & Schain, Jan Philip, 2017. "An empirical analysis of mergers: Efficiency gains and impact on consumer prices," DICE Discussion Papers 244, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tao Wang, 2020. "Competitive Intelligence and Disclosure of Cost Information in Duopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(3), pages 665-699, November.
    2. David Spector, 2021. "Market share transparency, signaling and welfare: Cournot and Bertrand," PSE Working Papers halshs-02946654, HAL.
    3. Markus Christen, 2005. "Research Note---Cost Uncertainty Is Bliss: The Effect of Competition on the Acquisition of Cost Information for Pricing New Products," Management Science, INFORMS, vol. 51(4), pages 668-676, April.
    4. Barrachina, Alex & Tauman, Yair & Urbano, Amparo, 2014. "Entry and espionage with noisy signals," Games and Economic Behavior, Elsevier, vol. 83(C), pages 127-146.
    5. Camille Cornand & Rodolphe Dos Santos Ferreira, 2020. "The social value of information and the competition motive: price versus quantity games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(4), pages 1101-1137, November.
    6. Myatt, David P. & Wallace, Chris, 2015. "Cournot competition and the social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 466-506.
    7. Cumbul, Eray, 2021. "Stackelberg versus Cournot oligopoly with private information," International Journal of Industrial Organization, Elsevier, vol. 74(C).
    8. Catilina, Eliane, 2019. "Information Acquisition with Endogenously Determined Cost in Cournot Markets with Stochastic Demand," MPRA Paper 93896, University Library of Munich, Germany.
    9. Dan Bernhardt & Bart Taub, 2015. "Learning about common and private values in oligopoly," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 66-85, March.
    10. Chang, Chun-Hao & Prakash, Arun J. & Yeh, Shu, 2004. "Sale of monopoly information and behavior of rivaling clients: A theoretical perspective," Review of Financial Economics, Elsevier, vol. 13(3), pages 283-304.
    11. Cornand, Camille & Dos Santos Ferreira, Rodolphe, 2020. "Cooperation in a differentiated duopoly when information is dispersed: A beauty contest game with endogenous concern for coordination," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 101-111.
    12. Mark Bagnoli & Susan G. Watts, 2015. "Competitive intelligence and disclosure," RAND Journal of Economics, RAND Corporation, vol. 46(4), pages 709-729, October.
    13. Sjaak Hurkens, 2012. "Bayesian Nash Equilibrium in ''Linear'' Cournot Models with Private Information About Cost," UFAE and IAE Working Papers 924.12, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    14. Juan-José Ganuza & Jos Jansen, 2013. "Too Much Information Sharing? Welfare Effects of Sharing Acquired Cost Information in Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 61(4), pages 845-876, December.
    15. Junjie Zhou & Xiaoshuai Fan & Ying-Ju Chen & Christopher S. Tang, 2021. "Information Provision and Farmer Welfare in Developing Economies," Manufacturing & Service Operations Management, INFORMS, vol. 23(1), pages 230-245, 1-2.
    16. Young-Ro Yoon, 2008. "Strategic Disclosure of Valuable Information within Competitive Environments," CAEPR Working Papers 2008-022, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    17. Medín, J. Andrés Faíña & Rodríguez, Jesús López & Rodríguez, José López, 2003. "Information Exchanges in Cournot Duopolies," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 57(1), January.
    18. Kazunori Miwa, 2021. "An Experimental Study on Information Acquisition and Disclosure in a Cournot Duopoly Market," Discussion Papers in Economics and Business 13-01-Rev, Osaka University, Graduate School of Economics.
    19. Pavan, Alessandro & Vives, Xavier, 2015. "Information, Coordination, and Market Frictions: An Introduction," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 407-426.
    20. Lagerlof, Johan N.M., 2007. "Insisting on a non-negative price: Oligopoly, uncertainty, welfare, and multiple equilibria," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 861-875, August.

    More about this item

    Keywords

    Information acquisition; Signaling; Information sharing; Product differentiation;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:61:y:2018:i:c:p:155-191. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.