Sharing Firm-Specific Information: Incentives and Welfare Effects

Abstract:     
The paper derives clear-cut and robust conclusions on the effects of sharing firm-specific information in general linear oligopoly. In Cournot (Bertrand) oligopoly, revealing (concealing) firm-specific cost information is the dominant strategy for each firm. In both competition modes firms have incentives to share firm-specific demand information. Sharing firm-specific cost information always hurts consumers but is socially beneficial in Cournot oligopoly and socially harmful in Bertrand oligopoly. Sharing firm-specific demand information also hurts consumers but increases welfare. Contrary to most existing results these findings are independent of distributional assumptions on costs and signals and hold for general asymmetric oligopoly with any mixture of substitute, complementary and independent goods.

Number of Pages in PDF File: 27

Keywords: information sharing, cost uncertainty, firm-specific information, benchmarking

JEL Classification: D82, L13, L41

working papers series