Blessing or curse? Impact of incomplete information in a networked cournot competition

Haoruo Zhu, Yaodong Ni, Meng Yang and Qinyu Song

Transportation Research Part E: Logistics and Transportation Review, 2023, vol. 179, issue C

Abstract: Networked markets are prevalently seen in different industries. Current research mainly focuses on settings with a transparent network. However, in many applications, firms choose their actions without fully knowing their competitors’ information. This study examines oligopolies in networked markets when firms’ production costs are incomplete information. We characterize the unique Bayesian equilibrium supply quantities for any given network under incomplete information. Our results connect the equilibrium outcome with the underlying competition and information structures. We find that when the production cost of a firm is high, incomplete information helps increase its total production quantity. In contrast, the impact is the opposite in the presence of low production costs. However, the impact of incomplete information on a firm’s supply allocation on each edge depends not only on its production cost but also on the network position of the edge. We also find that, unlike the case in single-market, the low-cost firm always suffers from incomplete information, while the high-cost firm benefits from incomplete information only under certain conditions. Moreover, we show that changes in global network structure that do not directly relate to a firm may alter its information preference. We study several extensions and find that not only do firms with cost advantage prefer complete information, but those high-cost firms with smaller cost disadvantages are also more likely to prefer a transparent competition environment. The case of heterogeneous logistic costs is also considered, and we show that for firms of high-cost type, the logistic cost advantage may hedge its benefit from incomplete information. Our findings imply that a firm has to consider not only its own cost type and local competition but also the global network structure to determine its preference for information structure. Moreover, our results may be helpful to the market regulator that, when promoting information transparency, firms with better production technology are more likely to support the movement.

Keywords: Networks; Incomplete information; Cournot competition; Non-cooperative games (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1016/j.tre.2023.103327

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