Information, Market Power and Price Volatility

Dirk Bergemann, Stephen Morris and Tibor Heumann

No 15104, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We consider demand function competition with a finite number of agents and private information. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. Regardless of the number of agents and the correlation of payo¤ shocks, market power may be arbitrarily close to zero (the competitive outcome) or arbitrarily large (so there is no trade). By contrast, price volatility is always lower than the variance of the aggregate shock across all information structures. Alternative trading mechanisms lead to very distinct bounds as a comparison with Cournot competition establishes.

Keywords: Demand function competition; Supply function competition; Price impact; market power; Incomplete information; Price volatility; Cournot competition (search for similar items in EconPapers)
JEL-codes: C72 D43 D44 D83 G12 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-com, nep-des, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Information, market power, and price volatility (2021)
Working Paper: Information, Market Power and Price Volatility (2019)
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