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Capacity Choice and Duopoly Incentives for Information Sharing

  • William Novshek
  • Lynda Thoman

We examine a three-stage game in which duopolists face a random demand intercept. The firms first choose capacities, then decide whether to commit to share the private information they will receive about the intercept. After the private information is observed, firms choose output levels. Comparing the results to an alternative model without capacity choice or capacity constraints, we show the existence of a capacity choice stage may reverse the incentives to share information, and lead to equilibria in which information sharing occurs. We use binary uncertainty since the common linearnormal model cannot handle capacity constraints. ZUSAMMENFASSUNG - (Kapazitätsentscheidungen und Duopolanreize bei Informationsaustausch) In dem Beitrag wird ein dreistufiges Spiel vorgestellt, in dem sich Duopolisten einer Nachfrage gegenübersehen, die eine Zufallsgröße ist. Die Unternehmen entscheiden auf der ersten Stufe über Kapazitäten, dann können sie sich freiwillig verpflichten, ihre privaten Information auszutauschen, die sie über das Marktvolumen erhalten werden. Nach der Beobachtung der privaten Information entscheiden die Unternehmen über die Angebotsmenge. Ein Vergleich der Ergebnisse dieses Spiels mit einem alternativen Modell ohne Kapazitätsentscheidung oder Kapazitätsbeschränkungen zeigt, daß die Existenz einer Kapazitätsentscheidungsstufe die Anreize zum Austausch von Informationen umkehren und zu Gleichgewichten führen kann, in denen Informationsaustausch stattfindet. In dem Spiel wird Unsicherheit binär modelliert, da das übliche linear-normalverteilte Modell keine Kapazitätsbeschränkungen erfassen kann.

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Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 97-13.

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Length: 40 pages
Date of creation: Jun 1997
Date of revision:
Publication status: Published in Southern Economic Journal , Vol. 72(4), April 2006, pp. 808-825.
Handle: RePEc:wzb:wzebiv:fsiv97-13
Contact details of provider: Postal: Reichpietschufer 50, 10785 Berlin, Germany
Phone: (++49)(30) 25491-441
Fax: (++49)(30) 25491-442
Web page: http://www.wzb.eu/mp/wiw/default.en.htm
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  1. Lode Li, 1985. "Cournot Oligopoly with Information Sharing," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 521-536, Winter.
  2. Alison J. Kirby, 1988. "Trade Associations as Information Exchange Mechanisms," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 138-146, Spring.
  3. Richard N. Clarke, 1983. "Collusion and the Incentives for Information Sharing," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 383-394, Autumn.
  4. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October.
  5. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-43, March.
  6. William Novshek & Hugo Sonnenschein, 1982. "Fulfilled Expectations Cournot Duopoly with Information Acquisition and Release," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 214-218, Spring.
  7. Malueg, David A. & Tsutsui, Shunichi O., 1996. "Duopoly information exchange: The case of unknown slope," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 119-136.
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