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Asymmetric information and product differentiation

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  • Boyer, Marcel
  • Mahenc, Phillippe
  • Moreaux, Michel

Abstract

We show that information asymmetry may not cause any distortion in product differentiation. This contrasts with the main result of the literature on signaling which stresses that information asymmetry has a non negligible impact on strategic behavior. A thorough analysis of the counter-incentives for information concealment shows that much is going on beneath the surface to yield the same equilibrium behaviors under complete and incomplete information. The absence of visible changes in equilibrium locations relies on invisible changes in strategies. There is a crucial modification in the follower's best response to the incumbent's location due to incomplete information. Nous montrons que l'asymétrie d'information peut ne causer aucune distorsion dans la différentiation des produits. Ce résultat va à l'encontre de ceux prévalant dans la littérature sur les signaux, littérature qui soutient que l'asymétrie d'information modifie de manière non négligeable les comportements stratégiques. Une analyse approfondie des contre-incitations pour la dissimulation d'information révèle des modifications sous-jacentes importantes menant aux mêmes observations d'équilibre en information complète et incomplète. L'absence de modifications apparentes dans les localisations d'équilibre repose sur des changements invisibles dans les stratégies, le suiveur modifiant de façon cruciale sa meilleure réponse à la localisation de la firme établie.
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Suggested Citation

  • Boyer, Marcel & Mahenc, Phillippe & Moreaux, Michel, 2003. "Asymmetric information and product differentiation," Regional Science and Urban Economics, Elsevier, vol. 33(1), pages 93-113, January.
  • Handle: RePEc:eee:regeco:v:33:y:2003:i:1:p:93-113
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    References listed on IDEAS

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    1. Lederer, Phillip J & Hurter, Arthur P, Jr, 1986. "Competition of Firms: Discriminatory Pricing and Location," Econometrica, Econometric Society, vol. 54(3), pages 623-640, May.
    2. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    3. Boyer, Marcel & Laffont, Jean-Jacques & Mahenc, Philippe & Moreaux, Michel, 1995. "Sequential Location Equilibria under Incomplete Information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(2), pages 323-350, July.
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    5. Boyer, Marcel & Laffont, Jean-Jacques & Mahenc, Philippe & Moreaux, Michel, 1994. "Location distortions under incomplete information," Regional Science and Urban Economics, Elsevier, vol. 24(4), pages 409-440, August.
    6. Boyer, Marcel & Mahenc, Philippe & Moreaux, Michel, 2003. "Entry preventing locations under incomplete information," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 809-829, June.
    7. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    8. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
    9. Helmut Bester, 1998. "Quality Uncertainty Mitigates Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 828-844, Winter.
    10. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August.
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    Cited by:

    1. Takanori Ago, 2013. "Demand creation and location: a variable consumer-distribution approach in spatial competition," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 51(3), pages 775-792, December.
    2. Ricardo Biscaia & Isabel Mota, 2013. "Models of spatial competition: A critical review," Papers in Regional Science, Wiley Blackwell, vol. 92(4), pages 851-871, November.
    3. Hiroshi Aiura, 2010. "“Signal-jamming” leads to “minimum differentiation” under demand uncertainty," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 45(2), pages 245-271, October.
    4. Bonein, Aurélie & Turolla, Stéphane, 2009. "Sequential location under one-sided demand uncertainty," Research in Economics, Elsevier, vol. 63(3), pages 145-159, September.
    5. Toshihiro Matsumura & Noriaki Matsushima, 2010. "Patent licensing, bargaining, and product positioning," ISER Discussion Paper 0775, Institute of Social and Economic Research, Osaka University.
    6. Chia-Hung Sun, 2013. "A Duality Between Cost-Reducing R&D versus Quality-Improving R&D and Welfare Analysis in a Hotelling Model," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 41(2), pages 133-148, June.
    7. Kress, Dominik & Pesch, Erwin, 2012. "Sequential competitive location on networks," European Journal of Operational Research, Elsevier, vol. 217(3), pages 483-499.
    8. António Brandão & Joana Pinho, 2015. "Asymmetric Information And Exchange Of Information About Product Differentiation," Bulletin of Economic Research, Wiley Blackwell, vol. 67(2), pages 166-185, April.
    9. Meza, Sergio & Tombak, Mihkel, 2009. "Endogenous location leadership," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 687-707, November.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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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