Experimentation, Information sharing and Oligopoly Limit Pricing

Bipasa Datta

Discussion Papers from Department of Economics, University of York

Abstract: The paper examines incumbents’ incentives to share information in the presence of entry threat when incumbents face uncertainty about their cost functions. Similar to the experimentation and learning literature, firms in this model can learn more about their costs through output production which simultaneously produces information. I find that in the presence of entry threat, information sharing may not emerge as an equilibrium outcome although information sharing enables firms to actually deter entry through better coordination of strategies. The learning effect of information production plays a crucial role in determining firms’ incentives to share. Both the sharing and non-sharing equilibria are characterised by downward price distortions, whereas entry takes place with a positive probability only in a non-sharing equilibrium.

Keywords: Information sharing; Bayesian learning; Entry threat; Cournot Competition. (search for similar items in EconPapers)
JEL-codes: D82 D83 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ind, nep-ino and nep-mic
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