Information Design and Communication in Cournot Competition
52 Pages Posted: 16 Apr 2024
Date Written: April 11, 2024
Abstract
This study examines an information communication problem in the context of Cournot competition involving two firms. Each firm has access to a private signal about the uncertain market demand. A mediator, also equipped with a private signal, facilitates information sharing between the two firms while disseminating its own private signal. We use a linear optimization model to formulate incentive-compatible information-sharing mechanisms. Linear optimization duality also allows us to establish simple upper bounds to evaluate the performances of information- sharing mechanisms. Our findings suggest that, in many parameter settings, sharing no private information between firms while letting the mediator share its signal is nearly optimal. How- ever, under certain conditions, firms partially sharing their information and coordinating their production decisions outperforms sharing no information.
Keywords: information sharing, Bayesian games with communication, information design, linear programming, incentive compatibility
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