Information Design and Communication in Cournot Competition

52 Pages Posted: 16 Apr 2024

See all articles by Xiao Wei

Xiao Wei

Tsinghua University - School of Economics & Management

Liu Yang

Tsinghua University - School of Economics & Management

Peng Sun

Duke University - Fuqua School of Business

Zheyuan Huang

Tsinghua University - School of Economics & Management

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

Suggested Citation

WEI, XIAO and Yang, Liu and Sun, Peng and Huang, Zheyuan, Information Design and Communication in Cournot Competition (April 11, 2024). Available at SSRN: https://ssrn.com/abstract=4791228 or http://dx.doi.org/10.2139/ssrn.4791228

XIAO WEI (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Liu Yang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Peng Sun

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Zheyuan Huang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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