Information, market power, and price volatility

Dirk Bergemann, Tibor Heumann and Stephen Morris

RAND Journal of Economics, 2021, vol. 52, issue 1, 125-150

Abstract: We consider demand function competition with a finite number of agents and private information. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. Regardless of the number of agents and the correlation of payoff shocks, market power may be arbitrarily close to zero (the competitive outcome) or arbitrarily large (so there is no trade). By contrast, price volatility is always lower than the variance of the aggregate shock across all information structures. Alternative trading mechanisms lead to very distinct bounds as a comparison with Cournot competition establishes.

Date: 2021
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Citations: View citations in EconPapers (5)

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https://doi.org/10.1111/1756-2171.12364

Related works:
Working Paper: Information, Market Power and Price Volatility (2020)
Working Paper: Information, Market Power and Price Volatility (2019)
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