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Experimentation, Information sharing and Oligopoly Limit Pricing

  • Bipasa Datta

The paper examines incumbents’ incentives to share information in the presence of entry threat when incumbents face uncertainty about their cost functions. Similar to the experimentation and learning literature, firms in this model can learn more about their costs through output production which simultaneously produces information. I find that in the presence of entry threat, information sharing may not emerge as an equilibrium outcome although information sharing enables firms to actually deter entry through better coordination of strategies. The learning effect of information production plays a crucial role in determining firms’ incentives to share. Both the sharing and non-sharing equilibria are characterised by downward price distortions, whereas entry takes place with a positive probability only in a non-sharing equilibrium.

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File URL: http://www.york.ac.uk/media/economics/documents/discussionpapers/1999/9934.pdf
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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 99/34.

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Handle: RePEc:yor:yorken:99/34
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  1. Mirman, L.J. & Samuelson, L. & Schlee, E.E., 1991. "Strategic Information Manupulation in Duopolies," Papers 9137, Tilburg - Center for Economic Research.
  2. Li, Lode., 1985. "Cournot Oligopoly with Information Sharing," Working Papers 561, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Grossman, Sanford J & Kihlstrom, Richard E & Mirman, Leonard J, 1977. "A Bayesian Approach to the Production of Information and Learning by Doing," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 533-47, October.
  4. Novshek, William & Thoman, Lynda, 1998. "Information disaggregation and incentives for non-collusive information sharing," Economics Letters, Elsevier, vol. 61(3), pages 327-332, December.
  5. Christian Schultz, 1997. "Limit Pricing when Incumbents have Conflicting Interests," CIE Discussion Papers 1997-17, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  6. Okuno-Fujiwara, Masahiro & Postlewaite, Andrew & Suzumura, Kotaro, 1990. "Strategic Information Revelation," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 25-47, January.
  7. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-43, March.
  8. Creane, Anthony, 1995. "Endogenous Learning, Learning by Doing and Information Sharing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 985-1002, November.
  9. Li, Lode & McKelvey, Richard D. & Page, Talbot., 1985. "Optimal Research for Cournot Oligopolists," Working Papers 563, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Matthews, Steven A & Mirman, Leonard J, 1983. "Equilibrium Limit Pricing: The Effects of Private Information and Stochastic Demand," Econometrica, Econometric Society, vol. 51(4), pages 981-96, July.
  11. 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.
  12. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
  13. Martin, Stephen, 1995. "Oligopoly limit pricing: Strategic substitutes, strategic complements," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 41-65, March.
  14. Shapiro, Carl, 1986. "Exchange of Cost Information in Oligopoly," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 433-46, July.
  15. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
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