A General Model of Information Sharing in Oligopoly

Abstract

Under which circumstances do oligopolists have an incentive to share private information about a stochastic demand or stochastic costs? We present a general model which includes virtually all models of the existing literature on information sharing as special cases.The analysis reveals that in contrast to the apparent inconclusiveness of previous results some simple principles determining the incentives to share information can be obtained. Most existing results are generalised and some interpretations are corrected, leading to a single general theory of the topic.

Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination

“…The classic literature in this area demonstrates the difficulties of inducing competing oligopolists to share private information (cf. Novshek and Sonnenschein 1982;Vives 1984;Gal-Or 1985Li 1985;Shapiro 1986;Raith 1996;Jin 2000), and potential ways to address this issue (e.g., Ziv 1993, Jain et al 2010. One of the primary conclusions derived from this literature is that when competing firms have private information on a common uncertain variable, they do not want to share this information with their competitors.…”

The value of information in explicit cross-border capacity auction regimes in electricity markets

“…Provided the common prior belief is normally distributed, equilibrium strategies are linear (or affine) and closed-form solutions can be derived. An overview of these models is provided by Raith (1996). In all such models, firms face uncertainty with respect to marginal costs, or inverse demand, or both.…”

“…The same holds true for expected electricity transmission. This follows from the fact that the variance of total output is decreasing and from the fact that consumer surplus is increasing with both variance of total output 15 This is a common issue, seen for example in Raith (1996). 23 and expected total output.…”

On the use of heuristics to approximate competitors’ private information

“…In previous lit-erature concerning the incentives to share information, results seem to depend sensitively on the specific assumptions of the model: a change from Cournot to Bertrand, from substitutes to complements, from demand to cost uncertainty, or from a common value to private values, may lead to completely different outcomes (Vives, 1990;Raith, 1996). Raith (1996) presents a general model which encompasses many of the existing literature on information sharing as special cases and is able to explain the factors leading to varying results. Similar to Raith (1996), our model allows for both Cournot and Bertrand models as special cases, and we allow for either demand or cost uncertainty.…”

“…First, the notion that firms would want to disclose their private information to each other if they prefer that all firms in the market use the full information builds upon the work of Fried (1984), Gal-Or (1986), Shapiro (1986), Raith (1996), and Jansen (2008), who examine the incentives of firms to share information with their competitors, for example through trade associations. In previous lit-erature concerning the incentives to share information, results seem to depend sensitively on the specific assumptions of the model: a change from Cournot to Bertrand, from substitutes to complements, from demand to cost uncertainty, or from a common value to private values, may lead to completely different outcomes (Vives, 1990;Raith, 1996). Raith (1996) presents a general model which encompasses many of the existing literature on information sharing as special cases and is able to explain the factors leading to varying results.…”