Information Sharing about a Demand Shock

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    Abstract

    This paper examines two questions in asymmetric Cournot and Bertrand oligopoly with a demand shock. Under which conditions is information sharing a subgame-perfect equilibrium? What is the welfare effect when firms are better off? Given these questions, the normal assumptions in the earlier literature can be relaxed in three ways: demand functions can be asymmetric; a demand shock can affect firms differently; distributions of the demand shock and information signals can be arbitrary. Under these general assumptions, the answer to the first question is: every firm's response to the demand shock is stronger when all firms have perfect information than when one firm does so alone; the answer to the second question is: social welfare increases in Cournot competition, and consumer surplus decreases in Bertrand competition.

    Original languageEnglish
    Pages (from-to)137-152
    Number of pages16
    JournalJournal of Economics
    Volume68
    Issue number2
    Publication statusPublished - 1998

    Keywords

    • information sharing
    • demand uncertainty
    • asymmetric oligopoly
    • OLIGOPOLY
    • COURNOT
    • TRANSMISSION
    • DUOPOLY

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