The social value of information and the competition motive: price versus quantity games

Camille Cornand and Rodolphe Dos Santos Ferreira

Economic Theory, 2020, vol. 70, issue 4, No 8, 1137 pages

Abstract: Abstract We propose a unified framework bridging the gap between team and competition issues in price and quantity games, played by producers of either substitutes or complements, when information is imperfect and dispersed. We reconsider the social value of private and public information in this context and compare the outcomes of the two types of games in terms of equilibrium and social welfare. By parting with full cooperation, the competition motive fitted into the payoffs introduces a strategy distortion and, when information is dispersed, an informational distortion, both increasing with the intensity of competition. The former affects the response to the expected value of the fundamental, and the latter translates into an inefficiently low (high) weight on public information under strategic complementarity (substitutability). Contrary to the latter, which vanishes in the absence of the competition motive, the former is eliminated, under strategic complementarity and dispersed information, at some positive strength of the competition motive, decreasing with the information quality. This disparity creates a trade-off between the minimization of each distortion. As to the social value of public information, it is always positive, while that of private information may be negative, again under strategic complementarity, if competition is intense and the quality of private information relatively poor. Finally, it is more profitable to play under strategic substitutability, except possibly for an intermediate range of the intensity of competition if the quality of private information is again relatively poor.

Keywords: Beauty contest; Price and quantity competition; Strategic substitutability and complementarity; (Anti-)coordination; Public and private information (search for similar items in EconPapers)
JEL-codes: D43 D82 L13 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00199-019-01179-7

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