Cournot Competition, Informational Feedback, and Real Efficiency

Lin Cong, Xiaohong Huang, Siguang Li and Jian Ni

No 32944, NBER Working Papers from National Bureau of Economic Research, Inc

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 production, it reduces the value of proprietary information (e.g., market prospects) for speculators and discourages information production and price discovery in financial markets. Therefore, competition generates non-monotonic welfare effects through two competing channels: market concentration and information production. When information reflected in stock prices is sufficiently valuable for production decisions, competition can harm both consumer welfare and real efficiency. Our results are robust under cross-asset trading and learning and highlight the importance of considering the interaction between product market and financial market in antitrust policy, e.g., concerning the regulation of horizontal mergers.

JEL-codes: D61 D83 G14 G34 G40 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-com, nep-fdg, nep-gth, nep-ind, nep-ipr and nep-mst
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