Impact of the Information Asymmetry Between Managers and Owners Under Oligopoly
Pedro Pereira and
JoÃ£o Vareda ()
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JoÃ£o Vareda: European Commission, DG Competition, Brussels, Belgium
Southern Economic Journal, 2016, vol. 82, issue 4, 1311-1326
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 ownersâ€™ incentives to induce effort. Information asymmetry raises the marginal cost of inducing effort, which decreases efforts and increases prices. Since all firmsâ€™ 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)
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Persistent link: https://EconPapers.repec.org/RePEc:sej:ancoec:v:82:4:y:2016:p:1311-1326
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