Bilateral Information Sharing in Oligopoly
21 Pages Posted: 16 Oct 2007
Date Written: October 2007
We study the problem of information sharing in oligopoly, when sharing decisions are taken before the realization of private signals. Using the general model developed by Raith (1996), we show that if firms are allowed to make bilateral exclusive sharing agreements, then some degree of information sharing is consistent with equilibrium, and is a constant feature of equilibrium when the number of firms is not too small. Our result is to be contrasted with the traditional conclusion that no information is shared in common values situations with strategic substitutes - such as Cournot competition with demand shocks - when firms can only make industry-wide sharing contracts (e.g., a trade association).
Keywords: Information sharing, oligopoly, networks, Bayesian equilibrium
JEL Classification: D43, D82, D85, L13
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