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Duopolists don't wish to share information
Abstract
This paper shows that in a ‘full Bayes-Cournot’ equilibrium, duopolists would prefer to keep their market information private rather than share it with their opponent. This is in contrast to a ‘fulfilled expectations Bayes-Cournot’ equilibrium where firms are indifferent to sharing.
... Esta línea de investigación se inició con Leland (1972), Weitzman (1974), Basar y Ho (1974) y Ponssard (1979) y continuó con la explosión de trabajos 7 en los años 80 y 90, pero todavía continúa siendo una área de investigación importante, Reynolds (2000), Stadler y Hornig (2000a), Hornig y Stadler (2000b), Hornig (2000a) (2000b), Stadler(2001), Jin (2001). Los resultados de trabajos pioneros en esta área, Novshek y Sonnenschein (1982), Clarke (1982, 1983), Gal-Or (1985), concluían que el intercambio de información reducía los beneficios de las empresas, sin embargo investigaciones más recientes han demostrado que la posibilidad de acuerdos rentables surgen en muchas más circunstancias que las inicialmente planteadas. Precisamente una revisión pormenorizada de esta literatura reciente se abordará en los apartados 2, 3 y 4 del presente trabajo. ...
... Autores destacados en el estudio de estos temas durante las décadas 80 y 90 han sido Novsheck y Sonnenschein (1982), Clarke (1983a, 1983b), Vives (1984, 1985, 1990, 1995), Gal-Or (1985, 1986), Li (1985), Browing (1987), Sakai y Yamato (1989, 1990), Kirby (1988, 1993), Sakai (1990, 1991), Ziv (1993), Hwang (1993, 1995), ...
... Estos autores llegaron a la conclusión de que las empresas no se beneficiarían del intercambio de información, ya que el efecto correlación superaba al efecto precisión. Clarke (1982, 1983), Vives (1984), Gal-Or (1985) y Li (1985) confirmaron los resultados de Novshek y Sonnenschein (1982) en oligopolios de Cournot. Clarke (83) llegó al extremo de concluir que únicamente a través de acuerdos colusivos podrían existir intercambios de información beneficiosos para las empresas, en cita textual " .. information pooling arrangements like trade associations can be considered prima facie evidence that firms are illegally cooperating to restrict output " . ...
El objetivo del presente trabajo es hacer una revisión de la literatura académica
de los acuerdos de intercambio de información sobre la demanda en modelos
de oligopolio y la derivación de algunas implicaciones políticas respecto a la
efectividad y a los límites de tales acuerdos. El principal problema es saber
cómo y hasta qué punto estos acuerdos influyen en el bienestar de los productores, consumidores y sociedad en general. Una primera aproximación
parece indicarnos que existen varios factores implicados: Tipo de competencia
(precios o cantidades), naturaleza de la incertidumbre (común o privada),
naturaleza de los bienes (sustitutivos o complementarios) y número de empresas.
... To this end, hotels can better correlate pricing decisions to actual market conditions to optimize profitability in the marketplace. A stochastic market environment restricts collusion since firms are not sure of precise market conditions as long as information is imperfect (Christodoulou et al., 2019;Clarke, 1983;Green & Porter, 1981;Kagel & Roth, 2016;Rasmusen, 2007). In other words, hotels are not sure of precise market conditions since information is asymmetric within imperfect market conditions (Stigler, 1964). ...
The lodging industry uses diverse pricing strategies to maximize revenues. Given the uncertain nature of decision-parameters (demand conditions), sharing information among competitors can dramatically impact hotels’ profits. This study examines decisions of hotels to share or not to share private information with competitors to maximize profits via a game-theoretic model. In a two-stage model, hotels decide whether to share information in the first stage, and then in the second stage compete in setting prices along the lines of a standard price competition model. Results include that hotels share demand information with their competitors if there is a low demand signal but conceal information if the demand signal is high. This study provides a standard price competition model that can assist hotel managers in decision-making on revenue management, including room pricing strategy.
Keywords: game theoretical model, information sharing, Nash equilibrium, price competition model, lodging industry, revenue management
... There is a wide range of issues to which information economics can be applied. A selected number of issues in economics includes asymmetric price information [127,17,135,90,104,105,107,134,96,40,125], asymmetric quality information [113,51,124,24,15,140,7,66,132,76], auctions [137,101,87,83,84,99,65,94,81,59,60,35,30,126,82], job market [123,139,53,72,21,68], insurance market [29,106,129,26], credit rationing [61,130,11], oligopoly and collusion [93,128,70,92,114,110,41,97,98,122,112,80,22,108], predatory pricing [111,85,71,109,102,39,86], and financial markets. 3 ...
This paper provides overviews of interesting topics of game theory, information economics, rational expectations, and efficient market hypothesis. Then, the paper shows how these topics are interconnected, with the rational expectations topic playing the pivotal role. Finally, by way of proving a theorem in the context of the well known Kyle's rational expectations equilibrium model, the paper provides an exposition of the interconnectedness of the topics.
... They further suggest that sharing information makes better agreements possible. In some cases, however, revealing all of a firm's decision-relevant information to an opponent may not be the most advantageous policy [Clarke, 1983; Gal-Or, 1985]. For example, although it has been shown that information transmission among supply chain partners may be beneficial [Mukhopadhyay et al., 1995], its effects among competitors appear to be more tentative [Zhu, 2004]. ...
In this paper, we draw on concepts from the rational expectations hypothesis (REH) and adaptive learning theory to introduce a new rational expectations theory of technology adoption. Although the REH and adaptive learning theory have been applied in many non-technology contexts, this research is among the first that applies rational expectations and adaptive learning theory to issues related to technology adoption. The proposed theory allows us to examine technology adoption settings where multiple parties seek to align their expectations of future value prior to making a decision to adopt. It also takes into account the learning and information sharing that generally occurs in the marketplace between multiple parties that can further influence clustered adoption and the overall adoption rate. In our effort to test our new theory, we construct several hypotheses that allow us to examine issues associated with information technology adoption that involves multiple parties (multi-partite technology adoption) and strong network externalities. We test for the existence of clustered adoption and the effects of information transmission in the electronic bill presentment and payment (EBPP) industry. We hypothesize that clustered adoption by firms will be influenced by their geographical collocation, the reach of their consumer bases, their industry sector associations, and their consensus choices of the technology vendor. Our results show preliminary evidence to support the proposed theory.
... Por consiguiente, hay un intercambio (o trade-off ) entre los beneficios derivados de la precisión de la información, generados a través del intercambio de información y las pérdidas originadas como consecuencia de la mejora de la información de las otras empresas. Las primeras aportaciones a la literatura de intercambio de información en oligopolio (considerando productos sustitutivos) corroboraban la idea de que intercambiar información reduce los beneficios de las empresas (Clarke, 1982(Clarke, y 1983Vives, 1984;Gal-or, 1985). Sin embargo si consideramos la posibilidad de que los bienes sean sustitutivos más lejanos, la externalidad informacional se hace cada vez más pequeña, ya que la adaptación de las otras empresas a los shocks de demanda no afecta tanto a la intersección de la demanda residual de nuestra empresa. ...
Este trabajo examina la literatura académica de los acuerdos de intercambio de información sobre la demanda en modelos de oligopolio, concretamente el caso de competencia en cantidades (competencia à la Cournot) e incertidumbre común sobre la demanda. El resultado del análisis permite la derivación de algunas implicaciones políticas respecto a la efectividad y a los límites de tales acuerdos, así como la orientación respecto a las futuras líneas de investigación en esta área de la economía.
... They found that firms would not benefit from sharing their information. Richard N. Clarke (1983); Xavier Vives (1984) confirmed Novshek and Sonnenschein´s results in Cournot oligopoly, but Vives (1984) found that allowing for price competition and differentiated products, exchange information about common demand intercept can increase firm´s profits. Lode Li (1985), showed that Cournot oligopolists producing homogeneous goods would not benefit from exchanging their information about demand uncertainty. ...
In this paper we analyze the profitability of information sharing among Cournot oligopolists receiving private information about random demand. We model the random demand as a linear demand having, 1) an unknown intercept, and 2) an unknown slope. In each of these two scenarios, firms observe private signals about the unknown parameter. We show that in the scenario-1, if the private signal observed by firms is accurate enough, information exchange is profitable and in the scenario-2, if there is a sufficiently large variation in the demand slope and private signals are accurate enough, firms earn strictly higher profits by sharing their information rather than keeping it private.
There have been so many papers on the theory of oligopoly and information. In spite of growing literature on this subject, however, we believe that there is nevertheless a conspicuously missing link in it. To our surprise, very few papers have ever attempted to investigate an important subject of “information exchange and risk aversion.” Although such a subject seems to demand very tough computations and psychological pains, we strongly believe that someone must take up a challenge. So, the main purpose of this paper is to do our best for filling in such a missing gap, thus hoping to do a contribution to the important subject of oligopoly and information. More specifically, this paper aims to discuss the value of additional information in Cournot duopoly when each firm faces its own cost uncertainty. If firms display risk aversion and thus maximize the expected utility of profits, the exchange of cost information between them affects the mean values of outputs as well as their variances. By employing a constant absolute risk aversion model, we are able to show the variance effect may sometimes overpower the mean effect, whence information sharing may possibly make firms worse off. As our daily experience shows, “going together” may sometimes be a better policy than “going alone.”
The purpose of this research is to investigate the value of demand information in an insurance market under both demand and cost uncertainty, something not previously considered in the literature. Thus, the contribution of this research is to shed light on the characteristics of the value of demand information in an insurance market under demand and cost uncertainty. The main results of this research are as follows. First, the value of demand information is always positive in an insurance market under both demand and cost uncertainty. This result shows that the value of demand information is also positive even if both demand and cost uncertainty coexist. Second, increases in demand uncertainty and the investment parameter and a decrease in cost uncertainty raise the value of demand information. From this result, we find that demand and cost uncertainty have opposite effects on the value of demand information. Third, whether an increase in the number of insurance firms raises the value of demand information depends on the magnitude of cost uncertainty. When cost uncertainty is very low (high), an increase in the number of insurance firms lowers (raises) the value of demand information.
The paper suggests using the average squared sales as a test for non-collusive information sharing in Cournot oligopoly. A risk averse firm is better off with non-collusive information sharing only if its average squared sales increases. Collusion usually reduces the average squared sales. Hence information sharing is likely non-collusive if it increases the average squared sales. If firms' average squared sales increase with information sharing, not only collusion is unlikely, but also the social welfare increases provided firms do not collude. Thus information sharing should be granted if it increases firms' average squared sales.
Die Industrieökonomik, im englischen Sprachraum als „Industrial Organization“ (IO) bezeichnet, ist ein zentrales Forschungsgebiet der modernen Volkswirtschaftslehre. Sie ist eine Teildisziplin der Mikroökonomik und befasst sich mit den Entscheidungen und Verhaltensweisen von Unternehmen, der Organisation und Struktur von Industrien sowie der Funktionsweise von spezifischen Märkten. Im Zentrum des Interesses stehen speziell Verhaltensweisen und Märkte, die mit dem Modell der vollkommenen Konkurrenz nur unzureichend beschrieben werden können. Solche Märkte sind insbesondere gekennzeichnet durch eine geringe Anzahl von Anbietern, heterogene Produkte mit differenzierten Preisen, komplizierte vertikale Strukturen auf der Angebotsseite (mehrstufige Produktion und Distribution) sowie hohe Aufwendungen fir Werbung und Forschung und Entwicklung (F and E). Um die Funktionsweise solcher Märkte zu verstehen, analysiert die theoretische Industrieökonomik das strategische Verhalten von Unternehmen mit Hilfe von verschiedenen Modellen der oligopolistischen Konkurrenz Das dominierende Analyseinstrument ist dabei die Spieltheorie, zu deren Entwicklung die Industrieökonomik im Gegenzug wichtige Beiträge geleistet hat.
Vita. Thesis (Ph. D.)--University of British Columbia, 1991. Includes bibliographical references (leaves 90-93).
Two steps are required for firms collusively to restrict output in stochastic markets. Firms must homogenize their market estimates by pooling information and they must cooperatively allocate production levels. In this article I examine the incentives for firms to share private information about a stochastic market. I show that there is never a mutual incentive for all firms in an industry to share unless they may cooperate on strategy once information has been shared. This situation is unfortunate, as society's welfare is maximized only when firms share information, but act competitively.
In questo lavoro viene affrontato il problema dello scambio di informazioni tra imprese concorrenti come pratica facilitante per la collusione tacita. Nella prima parte vengono evidenziati alcuni elementi utili per comprendere in quali circostanze un’ordinaria ricerca di mercato potrebbe cadere nel divieto dello scambio di informazioni e vengono descritte le linee guida emanate dal Department of Justice. Nella seconda parte vengono analizzati i diversi approcci presenti nella letteratura economica sul problema e viene suggerita un’ulteriore direzione di analisi che dia maggiore risalto al ruolo che le informazioni hanno nel processo decisionale delle imprese. Seguono le implicazioni per le politiche antitrust.
This is a preliminary version of a chapter of a prospective book which springs from concerted effort among several researchers in the field of industrial economics. The book is to collate some of the most state-of-art topics in industrial organisation. This chapter is devoted to the strategic role of information in oligopoly, and more broadly, in monotone games in general. From an informational point of view, research and development canbothbeinterpreted as acquisition of information. The distinction, if any, is that the former is oriented more toward the revelation of common states (e.g., the state of demand in an industry, which affects all firms operating in the industry) whilst the latter is concerned more about independent states (e.g., a firm’s idiosyncratic cost structure). Some terms and concepts are to be clarified in the beginning, as they can be (and indeed have been) used in different meanings depending upon authors and upon contexts. In section 0, the basic concepts of common states and independent states are explained. Then follows an extensive discussion on the value of information in sections 1 through 5. Some strategic aspects of voluntary information transmission, or communication
This paper discusses the value of information in supermodular and submodular games, using a simple duopoly model where the
level of demand is uncertain. It is shown that the value of information issuperadditive (resp.,subadditive) between players if the game issupermodular (resp.,submodular). For example, in a Bertrand (resp., Cournot) market with (possibly imperfect) substitute products, one firm's information
acquisition increases (resp., decreases) the other firm's incentive to acquire the same information. Furthermore, when the
game is either supermodular or submodular, the value of information is higher when the player isexpected to be informed according to the opponent's belief than when the player is expected to be uninformed; this result is reversed
when the game has asymmetric modularity (i.e., one player's action is substitutional to the other's, and the latter's action
is complemental to the former's). These qualitative observations have a potential to be applied to a larger class of games
with uncertainty where payoffs are smooth (e.g., twice continuously differentiable) in actions and states.
The paper considers the effect of private information on the incentive to form a cartel which acts both as a strategy-coordination device and as an information-sharing device. Focusing on involuntary information transmission from the cartel to any outside firms, it is shown that private information can cause a disincentive to the formation of a cartel. /// La formation endogène d'un cartel quand il existe de l'information privée. Ce mémoire examine l'effet de l'information privée sur l'incitation à former un cartel qui serve à la fois de mécanisme de coordination des stratégies et de mécanisme de partage d'information. En mettant l'accent sur la transmission involontaire d'information du cartel vers les firmes à l'extérieur du cartel, on montre que l'existence d'information privée peut constituer une désincitation à former un cartel.
The paper considers an oligopoly under uncertainty in segmented markets (markets in which risk aversion may vary across firms). With strong segmentation, a firm (rival) will increase (decrease) output and value in response to an increase in demand uncertainty. With weak segmentation, firms' outputs and values decrease with an increase in demand uncertainty. Thus, the plausible suspicion that decreasing demand uncertainty is beneficial to the participants may not be true in strongly segmented markets. A logical inference is that not concealing information about a random element in demand (i.e., reducing demand uncertainty) is the dominant strategy with weak segmentation.
This paper develops an n-firm model of quantity competition in which a subset of k firms may obtain access to demand information observed by their rivals. The firms acquiring information access can adjust their quantity strategies in response to this extra information, which provides informational rents. We find that individual firms always have an incentive to acquire information access, but this acquisition decreases all other firms' expected profit. However, firms' information acquisition increases consumer surplus. Nevertheless, costly information and informational rents can lead to equilibria with differentially-informed competitors.
. This paper surveys the contribution that recent developments in game theory have made to the understanding of oligopoly theory. It is argued that conventional models suffer from the problem that there are a number of solution concepts offered with little guidance as to which should be selected, and this is related to the static nature of the models employed. One important development in game theory has been the analysis of repeated games, and when applied to oligopoly theory this suggests that outcomes may be more cooperative than conventional theory suggests. Related to this is the requirement that firms employ credible threats to punish cheating from cooperative outcomes, and the paper examines the extent to which imperfect information may restrict the scope of firms to employ such punishments. One way in which firms may seek to make threats credible is through strategic investments, for example in production capacity, and the paper explores how competition over price or output is integrated with competition over instruments for strategic investment.
Fighting collusion Regulation of communication between firms
This paper is an attempt to create a coherent approach to the design of competition policy enforcement against collusion based on theoretical considerations, evidence from economic experiments, and case studies. I argue that collusion should primarily be fought indirectly by targeting types of communication between firms that are particularly likely to facilitate collusion. In particular, I identify types of communication which have high potential anti‐competitive effects but where it is unlikely that prohibiting communication will lead to efficiency losses. This analysis leads to some simple rules concerning communication between firms, which could also guide the development of competition rules for B2B electronic market places.
— Kai-Uwe Kühn
Within the framework of stochastic two-person nonzero-sum games, we deal with two commonly used models in engineering and economics—namely, the LQG (Linear-Quadratic-Gaussian) and the duopoly problems. We investigate how variations in information available to either player affect the equilibrium Nash strategies for these two models, whose existence and uniqueness have been proven in the paper. We show that for the LQG model better information for either player results in lower average Nash costs for both players; whereas for the duopoly model better information for one player helps him alone to achieve a higher average Nash profit, and it hurts the other player in the sense that his average Nash profit decreases. We further relate these properties of the Nash solutions for these two games to some of the distinct features of zero-sum games and team problems.
This article studies the fulfilled expectations equilibrium for a Cournot duopoly model in which firms acquire information about uncertain linear demand. Several propositions are established concerning the incentives to acquire and release information in this duopoly environment.