Exchange of private demand information by simultaneous signaling
As is well-known from the literature on oligopolistic competition with incomplete information, firms have an incentive to share private demand information. However, by assuming verifiability of demand data, these models ignore the possibility of strategic misinformation. We show that if firms can send misleading demand information, they will do so. Furthermore, we derive a costly signaling mechanism implementing demand revelation, even without verifiability. For the case of a gamma distribution of the firms' demand variables, we prove that the expected gross gains from information revelation exceed the expected cost of signaling if the skewness of the distribution is sufficiently large and the products are sufficiently differentiated.
|Date of creation:||2011|
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- George J. Mailath, 1989. "Simultaneous Signaling in an Oligopoly Model," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 417-427.
- Amir Ziv, 1993. "Information Sharing in Oligopoly: The Truth-Telling Problem," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 455-465, Autumn.
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- Carl Shapiro, 1986. "Exchange of Cost Information in Oligopoly," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 433-446.
- Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
- Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October.
- Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
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