How Does Competition Affect Incentives for Market Research?

Rafayal Ahmed and Colin Shopp

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze firms’ incentives to acquire information about market demand in a differentiated goods duopoly setting. We find two distinct benefits of having better information. Firstly, with better information, each firm can better match its price to demand. This benefit is decreasing in the level of market competition. Secondly, better information allows each firm to coordinate their prices with each other in different states, and each firm can make better use of its own information if the other firm acquires better information. This benefit is inverse u-shaped in the level of competition. Based on which effect dominates, each firm’s total benefit from information can either be decreasing, or inverse u-shaped in the level of competition. Given endogenous information acquisition decisions by firms, the effect of competition on consumer welfare is ambiguous.

Keywords: Information acquisition; Bertrand duopoly; signals; competition. (search for similar items in EconPapers)
JEL-codes: D43 D81 D84 L13 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-bec, nep-com, nep-gth, nep-ind and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:118311

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