Economics at your fingertips  

Impact of the Information Asymmetry Between Managers and Owners Under Oligopoly

Duarte Brito, Pedro Pereira and João Vareda ()
Additional contact information
João Vareda: European Commission, DG Competition, Brussels, Belgium

Southern Economic Journal, 2016, vol. 82, issue 4, 1311-1326

Abstract: We show, using a Hotelling (1929) model with Laffont and Tirole (1986) firms, that under duopoly, the information asymmetry caused by the separation of ownership and control has two effects on owners’ incentives to induce effort. Information asymmetry raises the marginal cost of inducing effort, which decreases efforts and increases prices. Since all firms’ prices increase, this leads to a change in the expected demand of each firm, and thus in the marginal benefit of inducing effort, which may amplify or mitigate the initial impact. As a consequence, information asymmetry may induce some firms to increase efforts and lower prices. More surprisingly, it may increase both ex post and ex ante social welfare.

JEL-codes: D82 L22 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Southern Economic Journal is currently edited by Laura Razzolini

More articles in Southern Economic Journal from Southern Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Laura Razzolini ().

Page updated 2019-02-07
Handle: RePEc:sej:ancoec:v:82:4:y:2016:p:1311-1326