Information Aggregation, Strategic Behaviour and Efficiency in Cournot Markets
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.
|Date of creation:||Nov 1998|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:2019. 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: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.