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Information Aggregation, Strategic Behaviour and Efficiency in Cournot Markets


  • Vives, Xavier


When is the modeller introducing more error when analysing a Cournot market with private cost information - when ignoring market power or when ignoring the impact of incomplete information? Is the welfare loss at the market outcome driven by private information or by market power? The answer, both to the positive and to the normative questions, is that in large enough markets abstracting from market power provides a much better approximation than abstracting from private information. More precisely, in a replica market with n firms facing increasing marginal costs of production subject to independent shocks, while the effect of market power decays quickly with n (it is of the order of 1/n for prices and 1/n2 for (per capita) expected total surplus (ETS)), the effect of private information decays more slowly with n (it is of the order of 1/ for prices and 1/n for ETS). Increasing n is more effective in reducing the welfare loss due to market power than the one due to private information. Simulations show that the result holds for moderately sized markets (small n) whenever uncertainty is significant. In this case information policy is more relevant than classical competition policy.

Suggested Citation

  • Vives, Xavier, 1998. "Information Aggregation, Strategic Behaviour and Efficiency in Cournot Markets," CEPR Discussion Papers 2019, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2019

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    References listed on IDEAS

    1. Anderson, Kym & Tyers, Rodney, 1993. "Implications of EC Expansion for European Agricultural Policies, Trade and Welfare," CEPR Discussion Papers 829, C.E.P.R. Discussion Papers.
    2. Maurel, Mathilde & Cheikbossian, Guillaume, 1998. "The New Geography of Eastern European Trade," Kyklos, Wiley Blackwell, vol. 51(1), pages 45-71.
    3. Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers.
    4. Agnès Bénassy-Quéré & Amina Lahrèche-Revil, 1998. "Pegging the CEECs Currencies to the Euro," Working Papers 1998-04, CEPII research center.
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    More about this item


    Competition Policy; Harberger Triangle; Information Sharing; market power; Private Information; rate of convergence;

    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
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices


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