Can More Information About Rivals' Costs Decrease Welfare?

19 Pages Posted: 25 Feb 2016

See all articles by Duarte Brito

Duarte Brito

New University of Lisbon

Pedro Pereira

Autoridade da Concorrência

Joao Vareda

Autoridade da Concorrência

Date Written: March 2016

Abstract

We investigate if more information about rivals' costs increases welfare when firms compete in prices and cost‐reducing investment. When firms compete only in prices, a firm sets a higher price under partial information than under complete information if it faces an efficient rival, and a lower price otherwise. Thus, more information redistributes market share from the more efficient to the less efficient firm, with a negative impact on welfare. When firms also compete in cost‐reducing investment, more information leads a firm to decrease investment if it faces an efficient rival, and to increase investment otherwise. Welfare decreases if firms are sufficiently asymmetric and their products sufficiently differentiated.

Suggested Citation

Brito, Duarte and Pereira, Pedro and Vareda, Joao, Can More Information About Rivals' Costs Decrease Welfare? (March 2016). The Manchester School, Vol. 84, Issue 2, pp. 251-269, 2016, Available at SSRN: https://ssrn.com/abstract=2737646 or http://dx.doi.org/10.1111/manc.12096

Duarte Brito (Contact Author)

New University of Lisbon ( email )

1099-085 Lisboa, 1099-085
Portugal

Pedro Pereira

Autoridade da Concorrência ( email )

1050-138 Lisboa
Portugal

Joao Vareda

Autoridade da Concorrência ( email )

1050-138 Lisboa
Portugal

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