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Dynamic Oligopoly with Incomplete Information

Alessandro Bonatti (), Gonzalo Cisternas and Juuso Toikka

Review of Economic Studies, 2017, vol. 84, issue 2, 503-546

Abstract: We consider learning and signalling in a dynamic Cournot oligopoly where firms have private information about their production costs and only observe the market price, which is subject to unobservable demand shocks. An equilibrium is Markov if play depends on the history only through the firms’ beliefs about costs and calendar time. We characterize symmetric linear Markov equilibria as solutions to a boundary value problem. In every such equilibrium, given a long enough horizon, play converges to the static complete information outcome for the realized costs, but each firm only learns its competitors’ average cost. The weights assigned to costs and beliefs under the equilibrium strategies are non-monotone over time. We explain this by decomposing incentives into signalling and learning, and discuss implications for prices, quantities, and welfare.

Keywords: Dynamic oligopoly; Asymmetric information; Learning; Signalling; Continuous time (search for similar items in EconPapers)
JEL-codes: C73 D43 D82 L13 (search for similar items in EconPapers)
Date: 2017
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