Information Value Under Demand Uncertainty and Endogenous Market Leadership

15 Pages Posted: 21 Nov 2014

See all articles by Scott M. Gilpatric

Scott M. Gilpatric

University of Tennessee

Youping Li

East China University of Science and Technology (ECUST)

Date Written: January 2015

Abstract

In an oligopoly model with firms choosing to produce in one of two periods, we identify the circumstance under which a firm’s having early information regarding stochastic demand results in market leadership. High demand volatility leads to Stackelberg competition with the information-advantaged firm leading. In the N-firm case an equilibrium with multiple leaders and multiple followers emerges endogenously. In a duopoly information acquisition game we identify conditions that determine whether neither, one, or both firms will pay to acquire early information and note that one firm’s obtaining early information may generate a positive externality benefitting its competitor. Both symmetric and asymmetric outcomes are possible and Stackelberg market leadership may occur in equilibrium, but only when firms have different costs of information. Our finding that an information advantage may convey leadership which then affects the value of information to the players applies to other settings exhibiting first-mover advantage such as certain public good provision games.

JEL Classification: C72, D82, L13

Suggested Citation

Gilpatric, Scott M. and Li, Youping, Information Value Under Demand Uncertainty and Endogenous Market Leadership (January 2015). Economic Inquiry, Vol. 53, Issue 1, pp. 589-603, 2015. Available at SSRN: https://ssrn.com/abstract=2528832 or http://dx.doi.org/10.1111/ecin.12119

Scott M. Gilpatric (Contact Author)

University of Tennessee ( email )

508 Stokely Management Center
Knoxville, TN 37996-0550
United States
865-974-1696 (Phone)

Youping Li

East China University of Science and Technology (ECUST) ( email )

Shanghai
China

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