Information Exchanges among Firms and Their Welfare Implications (Part 2) : Alternative Duopoly Models with Different Types of Risks

The purpose of this paper is to overview and evaluate the problem of information exchanges in oligopoly, an important topic in contemporary economics. It is intended as a synthesis of the two streams of economic theories, the economics of imperfect competition and the economics of risk and information. This long series of papers consist of three parts. The previous paper, which dealt with Part I, discussed the dual relations between the Cournot and Bertrand duopoly models in the absence of risk. This paper turns to Part II, focusing on many duopoly models in which a common risk is present. The starting point of discussion is the Cournot duopoly model with an industry-wide common demand risk. Many other duopoly models such as the Cournot duopoly with cost risk and the Bertrand duopoly with demand or cost risk are successively discussed. It will be seen that the existence of various risk factors and the informational exchanges between Cournot or Bertrand firms influence the welfare implications on consumers and the society in many complicated ways. The next paper which deals with Part III will be concerned with more complicated problems such as private risks and/or oligopoly models.