A GENERAL MODEL OF INFORMATION SHARING IN OLIGOPOLY*

by

Michael A Raith London School of Economics and Political Science

Contents: Abstract 1. Introduction 2. General Model 3. Nash Equilibrium of the Oligopoly Game 4. The Incentives to Share Information 5. Concluding Remarks A. Proofs of Lemmas and Propositions B. Definitions of Symbols References The Suntory Centre Suntory and Toyota International Centres for Economics and Related Disciplines London School of Economics and Political Science Discussion Paper Houghton Street No. TE/93/260 London WC2A 2AE March 1993 Tel.: 020-7955 6698 * I am especially indebted to Frank Bickenbach and Georg Nöldeke for numerous valuable comments and suggestions on the previous draft. Furthermore, I would like to thank Patrick Bolton, Benny Moldovanu, Urs Schweizer, Avner Shaked, John Sutton, and seminar participants in Bonn, Louvain-la-Neuve, and Jerusalem for helpful discussions and comments. An earlier version of the paper benefited from comments by Rembert Birkfeld, Clemens Esser, Guido Friebel, and Mark Spoerer. All remaining errors are my own. Finally, financial support from the Sonderforschungsbereich 303 (University of Bonn) and the Deutscher Akademischer Austauschdienst is gratefully acknowledged.

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.

Keywords: Oligopoly, information sharing, stochastic demand, stochastic costs. © Michael Raith. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.