Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Exchange of Cost Information in Oligopoly

Exchange of Cost Information in Oligopoly Abstract When do oligopolists gain by sharing their private information about their costs with one another? What are the social welfare effects of such information exchange? I study these questions by comparing the oligopolists' expected profits under a cost sharing agreement with their expected profits in the Bayesian equilibrium that would arise without cost sharing. I also analyse the firms' decisions to form a trade association to share their cost data. Under conditions of linear demand and Cournot behaviour, industrywide information exchange is the unique point in the core of the trade association membership game. The exchange of cost data increases expected profits and welfare, but reduces expected consumer surplus. Cost sharing increases efficiency by raising the market shares of lower cost firms and reducing the variability of aggregate output. Consumer surplus is diminished, however, because the variance of output is reduced, and consumer surplus is a convex function of output. This content is only available as a PDF. © 1986 The Society for Economic Analysis Limited http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Economic Studies Oxford University Press

Exchange of Cost Information in Oligopoly

The Review of Economic Studies , Volume 53 (3) – Jul 1, 1986

Loading next page...
 
/lp/oxford-university-press/exchange-of-cost-information-in-oligopoly-9hq393yM11

References (11)

Publisher
Oxford University Press
Copyright
© 1986 The Society for Economic Analysis Limited
ISSN
0034-6527
eISSN
1467-937X
DOI
10.2307/2297638
Publisher site
See Article on Publisher Site

Abstract

Abstract When do oligopolists gain by sharing their private information about their costs with one another? What are the social welfare effects of such information exchange? I study these questions by comparing the oligopolists' expected profits under a cost sharing agreement with their expected profits in the Bayesian equilibrium that would arise without cost sharing. I also analyse the firms' decisions to form a trade association to share their cost data. Under conditions of linear demand and Cournot behaviour, industrywide information exchange is the unique point in the core of the trade association membership game. The exchange of cost data increases expected profits and welfare, but reduces expected consumer surplus. Cost sharing increases efficiency by raising the market shares of lower cost firms and reducing the variability of aggregate output. Consumer surplus is diminished, however, because the variance of output is reduced, and consumer surplus is a convex function of output. This content is only available as a PDF. © 1986 The Society for Economic Analysis Limited

Journal

The Review of Economic StudiesOxford University Press

Published: Jul 1, 1986

There are no references for this article.