information transmission cournot and bertrand equilibria we examine how incentives for two duopolists to honestly share information change depending upon the nature of competition cournot or bertrand and the nature of the information structure while in earlier papers uncertainty is about an unknown common demand intercept in the present paper uncertainty is about unknown private costs the different information structure reverses the incentives to share information while with unknown common demand sharing is a dominant strategy with bertrand competition and concealing is a dominant strategy with cournot competition with unknown private costs sharing is a dominant strategy with cournot competition and concealing is a dominant strategy with bertrand competition

cournot oligopoly with information sharing this paper studies the incentives for information sharing among firms in a cournot oligopoly facing a linear uncertain demand and an affine conditional expectation information structure no information sharing is found to be the unique equilibrium in two cases in which the signals with equal precision are assumed indivisible and infinitely divisible however the nonpooling equilibrium converges to the situation where the pooling strategies are adopted as the amount of information increases hence the efficiency is achieved in the competitive equilibrium as the number of the firm become large

third market reforms the overlooked goal of the sec s order handling rules in 1997 the securities and exchange commission enacted significant reforms in u s markets several studies document that the new order handling rules increased competition for nasdaq stocks but the reforms were designed with an additional goal in mind to increase quote competition for the trading of nyse listed securities on nasdaq i e third market trading an evaluation of the reforms in the third market indicates that they did not achieve this objective instead both quote quality and quoting frequency were diminished due primarily to elimination of the excess spread rule this suggests that more significant changes are needed to increase inter exchange competition

optimal collusion with internal contracting abstract in this paper two firms play an infinitely repeated bertrand game and each firm has an agent who produces the firm s output and holds private information about production costs the colluding firms fix prices and allocate market shares based on their agents information we develop a model of collusion in which firms use the presence of agents as a strategic opportunity to restrict their incentives to distort private information we show that such firm behavior may expand the scope of optimal collusion whether market allocation schemes are asymmetric or symmetric

competitive nonlinear tariffs abstract this paper generalizes the study of nonlinear tariffs i e those depending nonlinearly on the quantity purchased to the case of a symmetric oligopoly competitive equilibria and the corresponding tariffs are analyzed in a cournot framework various equilibria are obtained which depend both upon the number of competing suppliers and the choice of market parameters used to characterize the competitors strategies buyers are classified by type each selecting an optimal consumption level in response to the prevailing tariff the phenomena of buyer self selection found in monopoly nonlinear pricing and the scaling of equilibrium demand elasticity found in cournot models both appear in the results

multiproduct two part tariffs abstract two part pricing by a multiproduct monopoly and a differentiated oligopoly are examined and compared two part pricing policies are seen to depend on whether products are complements or substitutes and on whether or not the market is segmented a principle result is that although competition tends to lower unit prices there is no corresponding tendency for competition to reduce entry fees the unit pricing rule is related to the ramsey pricing rule oligopoly equilibrium unit prices equal marginal cost when there is one consumer type

transaction costs order placement strategy and existence of the bid ask spread by considering investor order placement strategy this paper demonstrates that transaction costs cause bid ask spreads to be an equilibrium property of asset markets with transaction costs the probability of a limit order executing does not go to unity as the order is placed infinitesimally close to a counterpart market quote thus with certainty of execution at the counterpart market quote a gravitational pull is generated that keeps counterpart quotes from being placed infinitesimally close to each other an equilibrium spread is defined and its size linked to market thinness implications are noted for the design of a trading system

research note quantity discounts in differentiated consumer product markets in this paper we extend the standard hotelling model of product differentiation to incorporate a second dimension of consumer heterogeneity that relates to the quantity of the product consumers wish to buy this extension allows us to derive optimal nonlinear pricing rules chosen by competing sellers when offering differentiated products in the marketplace it also permits us to assess whether sellers find it optimal to offer quantity discounts in such a setting and the implications of such discounts on their profitability we find that offering quantity discounts corresponds indeed to equilibrium behavior the extent of discounting declines the less differentiated the products surprisingly when sellers offer to consumers a choice between two different sized packages their profits are at most as high as when such a choice is unavailable moreover when utilizing nonlinear pricing rules is not feasible the profits of the sellers actually decline when they offer consumers a choice between different sized packages a limited empirical investigation supports the comparative statics we derive in our theoretical model

fragmentation versus consolidation of securities trading evidence from the operation of rule 19c 3 stock exchanges defend their rules requiring members to trade listed stocks on an exchange floor as a means of achieving consolidation of trading which it is argued minimizes trading costs to investors by virtue of the securities and exchange commission s rule 19c 3 however these exchange rules cannot apply to stocks newly listed after april 26 1979 the objective of the securities and exchange commission rule was to end what was viewed as restraint of desirable competition that would more than compensate for any cost saving resulting from consolidation by comparing the cost of trading measured by bid ask spreads and returns variance for the two distinct groups of stocks those listed before april 26 1979 and those listed after we test these competing views we find that rule 19c 3 has not caused any reduction in spreads but may have caused an increase and has had no effect on returns variance

location models as models of product choice abstract markets in which firm choice of product is an economic decision are commonly analyzed using a variant of the location model pioneered by hotelling econ j 39 1929 41 57 this paper develops a framework for formalizing the idea that a set of consumers with preferences defined over an abstract set of commodities can be represented as if they behaved as is typically assumed in the goods as locations models with this framework in place we are able to derive the preference assumptions underlying the two most common versions of these models and also to uncover the foundations of the now well known principle of minimum differentiation

network competition and interconnection with heterogeneous subscribers abstract this paper analyses two way access pricing in a telecommunications market where consumers are heterogeneous in their demand for calls and firms are allowed to use non linear tariffs we first investigate how the presence of access charges affects the tariffs offered by firms in symmetric equilibrium next we show that under certain conditions each firm s profit is independent of the level of reciprocal access charge and therefore collusion using access charges is not sustainable this result suggests that efficient call allocations can be achieved under a minimal regulatory intervention i e recommending firms set access charges equal to call termination cost

selective hedging information asymmetry and futures prices evidence from hedging practices suggests that firms will hedge only if they expect that unfavorable events will arise in markets with a significant degree of information asymmetry in which hedgers are oligopolists with superior knowledge concerning supply and demand such as oil and gas futures we contend that these companies will selectively hedge price movements causing sharp price adjustments upon resolution of information asymmetry using aggregate analysts surprise as a proxy for the degree of information asymmetry we show that positive aggregate surprises lead to a price decline for futures which indicates that these firms unload their futures when the outlook is favorable

information sharing in oligopoly the truth telling problem while under some circumstances information sharing in oligopoly may be beneficial the literature ignores the possibility of strategic information sharing by assuming verifiability of data i endogenize the incentives for truthful information sharing and prove that if firms have the ability to send misleading information they will always do to overcome this problem i introduce a costly mechanism through which the firm will in its own best interest reveal the true value of its private information even though outside verification is impossible i show that in some cases benefits from information sharing exceed the signalling costs while in other cases the reverse is true the fact that i model a two sided signalling enables me to mitigate the signalling cost problem rather than burning money oligopolistic rivals may exchange transfer payments thereby significantly reducing signalling costs

brand specific tastes for quality this paper develops a model of nonlinear pricing with competition the novel ele ment is that each consumer s willingness to pay for quality is private information and is allowed to dier across brands the consumer s preferences are represented by a multidimensional type containing the marginal value of quality for dierent products buyers with high willingness to pay for quality also display strong preferences for par ticular brands and require higher discounts in order to switch away from their favorite product therefore competition is ercer for buyers with lower tastes for quality and hence more elastic demands this is in sharp contrast to earlier models in which com petition is ercer for higher taste more valuable buyers in equilibrium rms either compete intensively for the entire market providing strictly positive rents to all con sumers or shut down the least pro table segment of the market quality levels are distorted downwards for all buyers except for those with the highest type the number of competing rms and the degree of correlation across brand preferences enhance the e ciency of the allocation

product variety and competitive discounts abstract a market with free entry monopolistic competition is studied nonlinear pricing is shown to be the bertrand nash equilibrium strategy for firms given small per capita fixed costs the nonlinear pricing equilibrium approaches the perfectly competitive equilibrium with marginal cost pricing nonlinear pricing is associated with greater product variety than linear pricing increased variety leads to efficient pricing

home or overseas an analysis of sourcing strategies under competition motivated by the recent backshoring trend this paper studies a sourcing game where competing firms may choose between efficient sourcing e g sourcing from overseas and responsive sourcing e g sourcing from a home country efficient sourcing usually provides a cost advantage whereas responsive sourcing allows a firm to obtain more accurate demand information when making procurement decisions by characterizing the equilibrium outcome we find some interesting results driven by the strategic interaction between the firms first a firm may still use efficient sourcing in equilibrium even when the cost advantage associated with efficient sourcing does not exist this is because the firm can dampen competition by reducing the correlation between its own demand information and the competitor s second a cost hike in efficient sourcing e g the rising labor cost in asia may benefit all the firms in the industry the reason is that the cost hike may alleviate competition by inducing a new equilibrium sourcing structure this paper also sheds some light on the recent backshoring trend first our analysis indicates that more firms will shift from efficient sourcing to responsive sourcing in equilibrium i e backshore if the market size shrinks the demand becomes more volatile or the sourcing costs rise simultaneously second a firm s backshoring behavior reduces the competition on the cost dimension but it also has an ambiguous informational impact on the other firms in the market in particular some firms may benefit from increased correlation of their demand information under cournot competition with substitutable products overall the backshoring behavior can be beneficial to all the firms sticking to their original sourcing strategies under certain conditions this paper was accepted by martin lariviere operations management

information revelation in auctions with common and private values we explore the incentives to reveal verifiable private information when there are both common and private components to agents valuations and when private information is held in both dimensions when agents observe only one signal they have no incentive to reveal the signal because such a revelation would negate their information advantage however when agents observe multiple signals they may be incentivized to reveal certain signals that could lower their opponents bids and thereby result in a higher profit from other signals this paper shows that there exists an equilibrium with revelation of common value signals in standard auctions which is an efficient equilibrium that maximizes the social welfare and could provide the seller with a higher profit than a situation with no information revelation

price discrimination in free entry markets using a spatial model of monopolistic competition we investigate price discrimination in free entry zero profit markets we show that when brands are heterogeneous competition does not prevent discrimination the power to earn economic profits is not necessary for a firm to maintain discriminatory prices our model treats formally the fact that consumers difer not only in the utility they derive from a good but also in how strongly they prefer one brand over all others in markets where firms are very competitive sorting consumers on the strength on brand preference produces larger price differentials between groups than sorting on the basis of consumers reservation prices for the good when firms sort customers on the basis of strength of brand preference however we find that the output and welfare effects are generally less favorable than when sorting is more closely related to consumers reservation prices

strategic information management under leakage in a supply chain the importance of material flow management for a profit maximizing firm has been well articulated in the supply chain literature we demonstrate in our analytical model that a firm must also actively manage information flows within the supply chain which translates to controlling what it knows as well as what its competitors and suppliers know in our model of horizontal competition between an informed and an uninformed firm with a common upstream supplier material and information flows intersect through leakage of demand order information to unintended recipients as a result the informed firm s drive to control information flows within the supply chain can trigger operational losses through material flow distortion these losses can be so severe that the firm may prefer not to acquire information even when it is costless to do so our results underscore the importance of strategic information management actively managing the supply chain s information flows and making trade offs with material flows where appropriate to maximize profits

communication in cournot oligopoly abstract this paper studies communication in a static cournot duopoly model under the assumption that the firms have unverifiable private information about their costs we investigate the conditions under which the firms cannot transmit any information through cheap talk and show that when these conditions are violated it may be possible to construct informative cheap talk equilibria if the firms can communicate through a third party communication can be informative even when informative cheap talk is impossible we exhibit a simple mediated mechanism that ensures informative communication and interim pareto dominates the uninformative equilibrium for the firms

do competing specialists and preferencing dealers affect market quality we empirically demonstrate that the opportunities the boston stock exchange and the cincinnati stock exchange offer members to take the other side of their customers orders through affiliated market makers to internalize orders have little short run effect on posted or effective bid ask spreads this is true despite substantial movement of order flow away from the new york stock exchange when trading under one of these regional stock exchange programs begins these results contrast with the adverse effects of market fragmentation and internalization predicted by some theoretical market microstructure analyses and the popular financial press article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

exchange of cost information in oligopoly when do oligopolists gain by sharing their private information about their costs with one another what are the social welfare effects of such information exchange i study these questions by comparing the oligopolists expected profits under a cost sharing agreement with their expected profits in the bayesian equilibrium that would arise without cost sharing i also analyse the firms decisions to form a trade association to share their cost data under conditions of linear demand and cournot behaviour industrywide information exchange is the unique point in the core of the trade association membership game the exchange of cost data increases expected profits and welfare but reduces expected consumer surplus cost sharing increases efficiency by raising the market shares of lower cost firms and reducing the variability of aggregate output consumer surplus is diminished however because the variance of output is reduced and consumer surplus is a convex function of output

contracting and information sharing under supply chain competition we investigate contracting and information sharing in two competing supply chains each consisting of one manufacturer and one retailer the two supply chains are identical except they may have di

competition among markets the repeal of rule 390 abstract the new york stock exchange repealed its rule 390 on may 8 2000 the rule disallowed exchange members from trading stocks listed prior to april 26 1979 outside of an exchange we examine the implications of the rule s repeal on the competition for order flow as well as on measures of market quality such as spreads depth and price improvement for stocks impacted by the rule we use a second sample of stocks not subject to rule 390 rule 19c 3 stocks to control for market wide trends we have three important findings 1 quoted spreads decrease by about 18 for rule 390 stocks three times more than the reduction for rule 19c 3 stocks 2 effective spreads do not change and 3 the nyse lost little market share even in smaller trades that were supposed to migrate following the repeal our results indicate a paradigm shift in the way the nyse specialists make a market prior to the repeal the specialists set wider quotes but provided extensive price improvement following the repeal the specialists set tighter quotes with lesser price improvement possibilities we believe that this shift is a strategic response by the specialists to retain market share not by improving market quality but by making order flow internalization and payment for order flow less profitable as a result competition improves market quality but not in the way we would generally expect

the value of transparency in multidivisional firms we study internal incentives transparency and firm performance in multidivisional organizations two independent divisions of the same firm design internal incentives and decide whether to publicly disclose their performances in each division a risk neutral principal deals with a risk averse exclusive agent under moral hazard each agent exerts an unverifiable effort that creates a spillover on the effort cost of the other agent we first study the determinants of the optimal principal agent contract with and without performance transparency then we show how effort spillovers affect the equilibrium communication behavior of each division both principals commit to disclose the performance of their agents in equilibrium when efforts are complements while no communication is the only equilibrium outcome when efforts are substitutes

research note cost uncertainty is bliss the effect of competition on the acquisition of cost information for pricing new products we examine the optimal acquisition of information about a common uncertain cost factor by two competing firms seeking to price a new product we show that existing findings regarding the acquisition of demand information or the acquisition of either cost or demand information related to quantity decisions do not extend to this case for cost information with price competition the information acquisition strategies are strategic substitutes even though the price decisions that are based on the information are strategic complements competition decreases the expected value of cost information moreover when competition is intense and the cost of information low identical firms do not acquire the same amount of cost information even when information is free cost uncertainty acts like a fog that lessens the destructive effect of price competition when products are close substitutes and thus increases expected profits buyers on the other hand are better off when competing firms are informed about cost even though the expected value of cost information strictly decreases with competition the optimal price for industry specific cost information set by an information vendor increases with competition when the firms products are sufficiently substitutable

optimal disclosure policy in oligopoly markets this paper examines the private and social optimality of full disclosure of private information in a two period oligopoly model an incumbent firm is privately informed about the market demand and its production cost after operating as a monopolist in the first period and then competes against an entrant in the second period two main results are derived first it is shown that the incumbent is best off by pre committing to disclose both the demand and cost information by disclosing full information the incumbent nullifies its self defeating intertemporal incentives which arise whenever it has private information about the market demand its cost efficiency or both in addition the equilibrium output variance is the largest under full disclosure which benefits the incumbent ex ante second the paper shows that the incumbent s full disclosure of the demand and cost information may or may not be desirable from a social efficiency standpoint in particular the correlation between the firms production costs is crucial to the rank of disclosure policies in terms of their impact on social efficiency

information concealment in the theory of vertical integration abstract a model of vertical integration is proposed in which the motive for vertical integration lies in the concealment of information to other firms rather than uncovering of a new information since a vertically integrated firm trades internally rather than making publicly observable market transactions vertical integration offers an opportunity for the integrated firm to turn previously observable market data into private information it will be shown that when the acquisition cost of input is uncertain the ex ante profit of a downstream firm will increase if the ex post realized value is private information thereby providing a theory of vertical integration based on strategic information concealment welfare implications of vertical integration are also considered finally we demonstrate that the vertically integrated firm will adopt an inefficient sourcing rule when there are alternative but inferior input suppliers

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

recent advances in oligopoly theory from a game theory perspective abstract this paper surveys the contribution that recent developments in game theory have made to the understanding of oligopoly theory it is argued that conventional models suffer from the problem that there are a number of solution concepts offered with little guidance as to which should be selected and this is related to the static nature of the models employed one important development in game theory has been the analysis of repeated games and when applied to oligopoly theory this suggests that outcomes may be more cooperative than conventional theory suggests related to this is the requirement that firms employ credible threats to punish cheating from cooperative outcomes and the paper examines the extent to which imperfect information may restrict the scope of firms to employ such punishments one way in which firms may seek to make threats credible is through strategic investments for example in production capacity and the paper explores how competition over price or output is integrated with competition over instruments for strategic investment

information sharing between vertical hierarchies abstract when do principals independently choose to share the information obtained from their privately informed agents information sharing affects contracting within competing organizations and induces agents strategies to be correlated through the distortions imposed by principals to obtain information we show that the incentives to share information depend on the nature of upstream externalities between principals and the correlation of agents information with small externalities principals share information when externalities and correlation have opposite signs and do not share information when externalities and correlation have the same sign in this second case principals face a prisoners dilemma since they obtain higher profits by sharing information

spatial competition and spatial price discrimination the analysis of spatial competition under conditions of free entry which derives its major impetus from the seminal work of losch 1954 has been conducted in general on the assumption that the competitive firm will adopt an f o b pricing scheme see for example capozza and van order 1978 and holahan 1978 greenhut 1956 does consider some of the implications of discriminatory pricing within competitive markets but his analysis adopts an essentially short run view and provides little rationale for the choice of such a pricing policy by competitive firms this is in contrast with developments in the analysis of spatial monopoly the early work of singer 1937 and hoover 1937 and subsequent developments by for example greenhut 1956 beckmann 1976 beckmann and ingene 1976 greenhut and greenhut 1977 holahan 1975 and norman 1977 indicate that the spatial monopolist should adopt a discriminatory spatial pricing policy where spatial price discrimination is taken conventionally to mean that delivered prices do not follow an f o b scheme but that all concumers equidistant from a particular supplier pay the same price it is rarely however that the results generated by the analysis of spatial monopoly are reconsidered in the analysis of spatial competition in particular although we know that spatial price discrimination will in general increase a monopolist s profit the assumption that profit maximising spatially competitive firms will adopt f o b pricing schemes has rarely been questioned and has not been questioned within the loschian competitive framework greenhut and ohta 1975a chapter 8 and chapter 8 appendix i are notable exceptions but in both cases they depart from the loschian scheme the first objective of this paper is therefore to show that when loschian competitive firms are allowed the option of discriminatory pricing i e are free of institutional constraints which require f o b pricing they will be forced to exercise that option in order to maintain normal profits secondly we shall show that if competitive conditions change the form of price discrimination will also change and that under certain competitive conditions the degree of discrimination will increase with the degree of competition leading eventually to uniform pricing thirdly we compare two competitive cases with multi plant monopoly and derive the spatial analogue of the conventional spaceless monopoly perfect competition comparison the monopolist s plants will be larger in area and total output than each competitive firm but will supply less per consumer at a higher average price welfare comparisons are less clear cut in that they are dependent upon the type of competition we assume we show however that welfare maximisation requires marginal cost pricing where marginal cost includes transport costs and so requires f o b pricing if there are economies of scale to production it follows that welfare maximisation will require production subsidy

strategizing niceness in co opetition the case of knowledge exchange in supply chain innovation projects abstract in this paper we take a novel approach to address the dilemma of innovation sharing versus protection among supply chain partners the paper conducts an exploratory study that introduces factors affecting a firm s optimum supply chain innovation strategy we go beyond the conventional prisoners dilemma with its limiting assumptions of players preferences and symmetry to explore a larger pool of 2 2 games that may effectively model the problem after classifying firm types according to collaboration motive and relative power we use simulation to explore the effects of firm type opponent type and payoff structure on repeated innovation interactions or equivalently long term relations and optimality of niceness surprisingly we find that opponent type is essentially irrelevant in long term innovation interactions and focal firm type is only conditionally relevant the paper contributes further by introducing reciprocation of strategy type nice versus mean showing that reciprocation is recommended while identifying and explaining the exceptions to this conclusion

third market broker dealers cost competitors or cream skimmers this article compares the bid ask spread for new york stock exchange nyse listed securities before and after a major third market broker dealer bernard l madoff investment securities madoff begins to selectively purchase and execute orders in those securities tests reveal the quoted bid ask spread tightens when madoff enters the market furthermore trading costs as measured by the difference between the transaction price and the midpoint of the contemporaneous bid ask spread do not increase together these results suggest that the adverse selection problem associated with allowing agents to selectively execute orders in exchange listed securities may be economically insignificant

spatial monopoly and spatial monopolistic competition with two part pricing this paper develops a model of spatial price discrimination by two part pricing when bearing freight and nonlinear pricing are impossible the two part tariff comprises a membership fee and a price per visit when fixed costs per store are low a monopolist makes membership compulsory and builds stores too close together with higher fixed cost the monopolist offers consumers a choice between membership and nonmembership and builds stores too far apart nearby consumers become members more distant consumers nonmembers competition leads to closer spacing than monopoly and lower welfare except at high levels of fixed cost per store copyright 1988 by the london school of economics and political science

participation constraints in adverse selection models abstract this paper characterizes the optimal contract offered by an uninformed principal to an informed agent when the latter s reservation utility depends on his type the informational rent is nonmonotonic so that interior types may have a vanishing rent or be excluded from trade the paper identifies conditions for the optimal contract to be separating to be nonstochastic and to induce full participation it also discusses the nature of the solution when bunching occurs the results are applied to nonlinear pricing under price cap regulation and bypass competition and to competition in nonlinear pricing journal of economic literature classification numbers d82 d42 d23 d78 l51 l15

competing with menus of tariff options the nature of numerous strategies of firms is often discrete or countable this adds difficulty to measuring and testing for the existence of complementarities among several strategies this paper introduces a generalized multivariate count data model that allows estimating correlations of any sign among the pricing decisions of competing firms in a manner that is robust to the existence of unobserved heterogeneity leading to either over and underdispersion of the distribution of counts thus it is possible to overcome a major challenge in testing whether two decisions are strategic complements or substitutes namely dealing with the effect of unobserved heterogeneity i study how firms actually compete in nonlinear tariffs by analyzing the interrelation between the incumbent and entrant s decisions to offer a given number of tariff options results document the existence of complementarity among tariff options regardless of whether they are dominated or not this result supports the view that the implementation of nonlinear tariffs by means of a menu of self selecting two part tariffs has some strategic competitive value jel c35 d43 m21

information value under demand uncertainty and endogenous market leadership in an oligopoly model with firms choosing to produce in one of two periods we identify the circumstance under which a firm s having early information regarding stochastic demand results in market leadership high demand volatility leads to stackelberg competition with the information advantaged firm leading in the n firm case an equilibrium with multiple leaders and multiple followers emerges endogenously in a duopoly information acquisition game we identify conditions that determine whether neither one or both firms will pay to acquire early information and note that one firm s obtaining early information may generate a positive externality benefitting its competitor both symmetric and asymmetric outcomes are possible and stackelberg market leadership may occur in equilibrium but only when firms have different costs of information our finding that an information advantage may convey leadership which then affects the value of information to the players applies to other settings exhibiting first mover advantage such as certain public good provision games jel c72 d82 l13

duopoly information equilibrium cournot and bertrand abstract in a duopoly model where firms have private information about an uncertain linear demand it is shown that if the goods are substitutes not to share information is a dominant strategy for each firm in bertrand cournot competition if the goods are complements the result is reversed furthermore the following welfare results are obtained 1 i with substitutes in cournot competition the market outcome is never optimal with respect to information sharing but it may be optimal in bertrand competition if the products are good substitutes with complements the market outcome is always optimal 2 ii bertrand competition is more efficient than cournot competition 3 iii the private value of information to the firms is always positive but the social value of information is positive in cournot and negative in bertrand competition

asymmetric information acquisition and behavior in role choice models an endogenously generated signaling game the authors employ a static homogeneous good duopoly model wherein firms can choose to produce in one of two periods the model allows agents to acquire information and then traces the impact of the information pattern on subsequent production behavior asymmetric information acquisition leads to a unique production role choice pattern the informed uninformed firm chooses to assume the leader s follower s role moreover if information is costly the typical equilibrium involves only one firm acquiring information thus identical firms with identical opportunities choose to become asymmetrically informed and produce sequentially this is the unique refined equilibrium outcome copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

duopoly information exchange the case of unknown slope abstract we model information exchange between duopolists facing a common random demand the slope of the common demand curve facing the firms is assumed unknown and firms observe private signals about this slope we show that for sufficiently large variation in the demand slope firms earn strictly higher profit when they share their information rather than keeping it private even with constant marginal costs and homogeneous goods in this case it is a nash equilibrium for the duopolists to share their information in a quid pro quo information exchange consistent with earlier models information exchange raises welfare

an empirical study of the effect of rule 19c 3 the extent to which all orders for common stocks should be consolidated that is sent to a single marketplace and the effect of consolidation on competition in the securities markets have been the subject of much debate in the past quarter century this debate has focused on offboard trading restrictions for member firms for example new york stock exchange nyse rule 390 and american stock exchange amex rule 5 and on the institution of appropriate intermarket linkages for example the consolidated transactions tape the consolidated quotations system and the intermarket trading system while the securities and exchange commission sec has attempted to promote competition in the securities markets the results of its efforts are uncertain consequently the consolidation fragmentation debate continues in this article we examine a very specific case in which the sec tried to increase the degree of competition in market making rule 19c 3 allowed off board trading of nyse listed stocks by exchange members as we will show this rule had both beneficial and adverse effects section i describes rule 19c 3 the environment which led to its introduction and the controversy surrounding it in section ii we examine the effect of rule 19c 3 on over the counter otc market making activity we find that for about 34 percent of the eligible stocks the introduction of exchange member market makers increased the total level and also the continuity of otc market making activity in section iii we find that rule 19c 3 has had a statistically significant effect in reducing percentage bidask spreads which ceteris paribus is desirable in section iv our analysis shows that rule 19c 3 has led to an increase in returns variance which ceteris paribus is undesirable finally our summary and conclusion are presented in section v

competitive pricing in markets with different overhead costs concealment or leakage of cost information this paper experimentally investigates how leaders and followers in a duopoly set prices for two product markets that have different overhead costs in a fully crossed two by two design we manipulate the participants private cost report quality as either low or high representing the extent to which these reports reveal that product markets have different overhead costs we show that when only the leader is given a high quality cost report private cost information of higher quality is better incorporated into market prices that are observable to participants both the leader and follower improve in profits and their prices better reflect the differences in overhead costs because the follower infers information from the leader s prices information leakage in contrast when only the follower receives a high quality cost report the leader s profits and prices do not improve this occurs because the follower conceals cost information when the leader has a low quality cost report

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

competitive screening under heterogeneous information we study the interplay between informational frictions and second degree price discrimination our theory recognizes that consumers differ in their tastes for quality as well as in the information they possess about available offers which leads to dispersion over price quality menus in equilibrium while firms are ex ante identical we show that their menus are ordered so that more generous menus leave more surplus to consumers of all valuations we explore the cross section of equilibrium menus and variations in market conditions to generate empirical predictions on prices qualities and markups across firms and within a firm s product line for instance more competition may raise prices for low quality goods yet consumers are better off as the qualities they receive also increase the predictions of our model illuminate empirical findings in many markets such as those for cell phone plans yellow pages advertising cable tv and air travel

cartel enforcement with uncertainty about costs what cartel agreements are possible when firms have private information about production costs in order for a cartel agreement to work it must take into account the incentives for firms to misrepresent their cost information and it must provide sufficient reward so that no firm wishes to defect for private cost uncertainty we characterize the set of cartel agreements with side payments that can be supported as bayesian nash equilibria we show that if defection results in either cournot or bertrand competition the incentive problems in large cartels are severe enough to prevent the cartel from achieving the monopoly outcome in contrast with common cost uncertainty the incentive problems become less severe in large cartels allowing perfect collusion

implications of breach remedy and renegotiation design for innovation and capacity amanufacturer writes supply contracts with n buyers then the buyers invest in innovation and the manufacturer builds capacity finally demand is realized and the firms renegotiate the supply contracts to achieve an efficient allocation of capacity among the buyers the court remedy for breach of contract specific performance versus expectation damages affects how the firms share the gain from renegotiation and hence how the firms make investments ex ante the firms may also engage in renegotiation design inserting simple clauses into the supply contract to shape the outcome of renegotiation for example when a buyer grants a financial hostage to the manufacturer or is charged a per diem penalty for delay in bargaining the manufacturer captures the gain from renegotiation tradable options which grant buyers the right to trade capacity without intervention from the manufacturer return the gain from renegotiation to the buyers this paper proves that under surprisingly general conditions the firms can coordinate their investments with the simplest of supply contracts fixed quantity contracts this may require renegotiation design and certainly requires that the firms understand the breach remedy and set their contract parameters accordingly

experimental evidence of pooling outcomes under information asymmetry operational decisions under information asymmetry can signal a firm s prospects to less informed parties such as investors customers competitors and regulators consequently managers in these settings often face a trade off between making an optimal decision and sending a favorable signal we provide experimental evidence on the choices made by decision makers in such settings equilibrium assumptions that are commonly applied to analyze these situations yield the least cost separating outcome as the unique equilibrium in this equilibrium the more informed party undertakes a costly signal to resolve the information asymmetry that exists we provide evidence however that participants are much more likely to pursue a pooling outcome when such an outcome is available this result is important for research and practice because pooling and separating outcomes can yield dramatically different results and have divergent implications we find evidence that the choice to pool is influenced by changes in t

strategic inventories in vertical contracts classical reasons for carrying inventory include fixed nonlinear production or procurement costs lead times nonstationary or uncertain supply demand and capacity constraints the last decade has seen active research in supply chain coordination focusing on the role of incentive contracts to achieve first best levels of inventory an extensive literature in industrial organization that studies incentives for vertical controls largely ignores the effect of inventories does the ability to carry inventory influence the problem of vertical control conversely can inventories arise purely due to incentive effects this paper explicitly considers both incentives and inventories and their interplay in a dynamic model of an upstream firm supplier and a downstream firm buyer who can carry inventories in our model none of the classical reasons for carrying inventory exists however as we prove the buyer s optimal strategy in equilibrium is to carry inventories and the supplier is unable to prevent

signaling new product reliability with after sales service contracts prior studies on performance based contracting pbc for after sales services have highlighted its advantages over traditional resource based contracting rbc when products are established and their reliability is known to all parties we develop a game theoretic model to investigate how these insights are affected when the vendor is privately informed about the reliability of a newly developed product a novel feature of our model is the interaction between reliability signaling private information and the vendor s discretionary investment in spares inventory private action which arises naturally in the setting we consider we find that this interaction leads to contrasting equilibrium outcomes under the two contracts rbc induces the vendor to focus on inventory savings leading to underinvestment in spares whereas pbc induces the vendor to focus on reliability signaling achieved through overinvestment in inventory as a result neither contract is efficient we investigate two means to mitigate this inefficiency but either approach has caveats a making inventory verifiable removes the trade off between reliability signaling and inventory investment but results in diverging contract preferences between the vendor and the buyer b pooling inventories across multiple buyers saves inventory costs but it also hinders reliability signaling potentially exacerbating inefficiency this paper was accepted by yossi aviv operations management

optimal portfolio choice under incomplete information models of asset pricing generally assume that the variables which characterize the state of the economy are observable however the distributional properties of asset prices that are relevant for portfolio decisions are in general not observable and therefore must be estimated the estimation of expected returns is a particularly difficult problem and estimation errors are likely to be substantial in this light it is reasonable to examine whether the assumption of observability of expected returns and other relevant state variables causes significant mis specification in equilibrium models of asset prices this paper has three main objectives first to derive optimal estimators for the unobservable expected instantaneous returns using observations of past realized returns second to establish that estimation and portfolio choice can be solved in two separate steps third to analyze the impact of estimation error on investment choices the estimators of expected returns are in general not consistent i e the estimation error does not tend to disappear asymptotically the effects of the estimation error therefore cannot be ignored even if realized returns are observed continuously over an infinite time period

price and advertising signals of product quality we present a signaling model based on ideas of phillip nelson in which both the introductory price and the level of directly uninformative advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in our model a second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

cross firm real earnings management cross firm real earnings management our analysis is rooted in the notion that stockholders can learn about the fundamental value of any firm from observing the earnings reports of its rivals we argue that such intra industry information transfers which have been broadly documented in the empirical literature may motivate managers to alter stockholders beliefs about the value of their firm not only by manipulating their own earnings report but also by influencing the earnings reports of rival firms managers obviously do not have access to the accounting system of peer firms but they can nevertheless influence the earnings reports of rival firms by distorting real transactions that relate to the product market competition we demonstrate such managerial behavior which we refer to as cross firm real earnings management and explore its potential consequences and interrelation with the practice of accounting based earnings management within an industry setting with imperfect non proprietary accounting information this article is protected by copyright all rights reserved

technological competition uncertainty and oligopoly abstract in an oligopoly context the present technological choice of a firm which expects to receive private revelant information just prior to the uncertain market stage has both a flexibility value and a strategic commitment value in contrast to some common wisdom ideas we provide a natural two stage competition framework in which an increase in uncertainty always raises the commitment value of the technological choice of the firm and may decrease its flexibility value when the increased uncertainty takes the form of more variable beliefs the first result tends to reinforce therefore the findings of the strategic commitment literature under certainty

the impact of information sharing opportunities on market outcomes an experimental study information regarding uncertain demand conditions or industry costs as well as the opportunity to share this information can have an important impact on firm behavior a series of recent game theoretic models have characterized the incentives for firms to share information regarding uncertain parameters 3 7 8 13 14 16 22 26 20 21 provide a comprehensive survey most of the models assume that behavior in the output market is noncooperative regardless of the firms information sharing decisions this paper reports a series of 15 laboratory sessions that test the noncooperative backward induction approach of these models the results suggest that pricing behavior may be influenced by the information sharing decision under most conditions the noncooperative nash model accurately describes average behavior although in certain conditions information sharing appears to facilitate tacit collusion the paper also estimates a simple behavioral model of learning that describes how experimental subjects learn the optimal information sharing decision as an alternative to the theories backward induction assumption the information sharing models tested here have been interpreted as identifying the incentives for competitive firms to form a trade association that reduces their uncertainty thousands of trade and professional associations are active worldwide and the majority collect information from their members that is aggregated and distributed through association statistical programs the theoretical models demonstrate how three variables influence the information sharing incentives 1 the type of competition bertrand or cournot 2 the nature of the goods substitutes or complements and 3 the source of uncertainty demand or cost the first two variables determine the slope of the firms reaction functions and the uncertainty source along with the information sharing decision determines the degree of correlation among the firms strategies the incentive for noncooperative firms to share information shifts as these three variables change because reduced correlation has a negative or positive effect on profit depending upon the slope of the reaction functions

interjurisdictional competition with adverse selection abstract in this paper we study the welfare consequences of imposing alternative regimes of competition between two local governments that compete for mobile firms which have private information on their degree of mobility competition among jurisdictions raises the firms rents to higher levels than if jurisdictions were to cooperate therefore from the perspective of a utilitarian federation constitutional constraints on the competition process may be desirable we find that imposing a system of coarser policy instruments improves welfare relative to competition with discretionary instruments because it reduces the socially costly rents that are granted to firms in equilibrium we also find that the gains from constraining competition to uniform policy instruments are maximal when communities are identical but decline if the extent of asymmetry between locations in terms of local market size or technological complementarities increases

sufficient decisions in multi sided and multiproduct markets we show that in many models where firms make multiple decisions analysis can be made more tractable by re formulating the model into one in which each firm makes a single choice which we call a sufficient decision the transformation allows application of standard techniques in these settings including pass through for tax incidence and upward pricing pressure for merger analysis the transformation works because the assumption of profit maximization links the firms decisions together examples include models of monopoly and oligopoly in two sided markets where a natural sufficient decision may be the number of transactions that the firm facilitates and multiproduct markets