Cournot Competition, Informational Feedback, and Real Efficiency

56 Pages Posted: 26 Jun 2024

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Xiaohong Huang

Southwestern University of Finance and Economics (SWUFE) - School of Finance

Siguang Li

Hong Kong University of Science and Technology, Guangzhou Campus, Society Hub

Jian Ni

Southwestern University of Finance and Economics (SWUFE) - School of Finance

Date Written: May 01, 2024

Abstract

We revisit the relationship between firm competition and real efficiency in a novel setting with informational feedback from financial markets. Although intensified competition can decrease market concentration in the product market, it reduces the value of proprietary information (e.g., market prospects) for speculators and discourages information production and price discovery in the financial market. Therefore, competition generates non-monotonic welfare effects through two competing channels: market concentration and information production. When information reflected through stock prices is sufficiently valuable for production decisions, competition can harm both consumer welfare and real efficiency. Our results are robust with cross-asset trading and/or cross-asset learning and highlight the importance of considering the interaction between the product market and the financial market in antitrust policy, especially the regulation of horizontal mergers.

Keywords: Feedback Effects, Information Production, Market Efficiency, Horizontal Mergers, Product Competition

Suggested Citation

Cong, Lin and Huang, Xiaohong and Li, Siguang and Ni, Jian, Cournot Competition, Informational Feedback, and Real Efficiency (May 01, 2024). Available at SSRN: https://ssrn.com/abstract=4870197 or http://dx.doi.org/10.2139/ssrn.4870197

Lin Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.linwilliamcong.com/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Xiaohong Huang

Southwestern University of Finance and Economics (SWUFE) - School of Finance ( email )

Siguang Li (Contact Author)

Hong Kong University of Science and Technology, Guangzhou Campus, Society Hub ( email )

Room 508, Building W1, HKUST (Guangzhou campus)
Guangzhou, Guandong 510000
China

HOME PAGE: http://www.siguangli.com

Jian Ni

Southwestern University of Finance and Economics (SWUFE) - School of Finance ( email )

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