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An Efficient Market Mechanism with Endogenous Information Acquisition: Cournot Oligopoly Case

Li, Lode (1985) An Efficient Market Mechanism with Endogenous Information Acquisition: Cournot Oligopoly Case. Social Science Working Paper, 571. California Institute of Technology , Pasadena, CA. (Unpublished)

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The question of how an efficient competitive equilibrium could be reached through a pricing mechanism in which the information acquisition is endogenously determined is addressed. The traditional oligopoly market is extended to include an ex ante information market when there is uncertainty either in the cost function or the demand function. Equilibrium behavior is characterized in a two-stage noncooperative game involving n production firms and m research firms in the industry. As the environment becomes more competitive, meaning, both the information market and the tangible good market become large, the equilibrium random price of the product converges almost surely to its competitive price level with certainty and consequently the total social welfare (consumer plus producer surplus) is maximized.

Item Type:Report or Paper (Working Paper)
Additional Information:I gratefully acknowledge the insightful suggestion of my former teacher Morton Kamien. The paper is a continuation work on the basis of "Optimal Research for Cournot Oligopolists," a joint work with my colleagues Richard D. McKelvey and Talbot Page, I have also benefited from my discussion with Leonid Hurwicz and Quang H. Vuong.
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:571
Record Number:CaltechAUTHORS:20170915-150746484
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:81498
Deposited By: Jacquelyn Bussone
Deposited On:19 Sep 2017 22:06
Last Modified:03 Oct 2019 18:43

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