Dynamic Oligopoly with Incomplete Information
We consider learning and signalling in a dynamic Cournot oligopoly where firms have private information about their production costs and only observe the market price, which is subject to unobservable demand shocks. An equilibrium is Markov if play depends on the history only through the firms’ beli...
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| Format: | Article |
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Oxford University Press
2018
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| Online Access: | http://hdl.handle.net/1721.1/114280 https://orcid.org/0000-0002-9150-2334 https://orcid.org/0000-0003-0641-4960 https://orcid.org/0000-0003-0400-5733 |
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| author | Bonatti, Alessandro Cisternas Leyton, Gonzalo Sebastian Toikka, Juuso T |
| author2 | Massachusetts Institute of Technology. Department of Economics |
| author_facet | Massachusetts Institute of Technology. Department of Economics Bonatti, Alessandro Cisternas Leyton, Gonzalo Sebastian Toikka, Juuso T |
| author_sort | Bonatti, Alessandro |
| collection | MIT |
| description | We consider learning and signalling in a dynamic Cournot oligopoly where firms have private information about their production costs and only observe the market price, which is subject to unobservable demand shocks. An equilibrium is Markov if play depends on the history only through the firms’ beliefs about costs and calendar time. We characterize symmetric linear Markov equilibria as solutions to a boundary value problem. In every such equilibrium, given a long enough horizon, play converges to the static complete information outcome for the realized costs, but each firm only learns its competitors’ average cost. The weights assigned to costs and beliefs under the equilibrium strategies are non-monotone over time. We explain this by decomposing incentives into signalling and learning, and discuss implications for prices, quantities, and welfare. |
| first_indexed | 2024-09-23T12:36:12Z |
| format | Article |
| id | mit-1721.1/114280 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T12:36:12Z |
| publishDate | 2018 |
| publisher | Oxford University Press |
| record_format | dspace |
| spelling | mit-1721.1/1142802022-09-28T08:58:53Z Dynamic Oligopoly with Incomplete Information Bonatti, Alessandro Cisternas Leyton, Gonzalo Sebastian Toikka, Juuso T Massachusetts Institute of Technology. Department of Economics Sloan School of Management Bonatti, Alessandro Cisternas Leyton, Gonzalo Sebastian Toikka, Juuso T We consider learning and signalling in a dynamic Cournot oligopoly where firms have private information about their production costs and only observe the market price, which is subject to unobservable demand shocks. An equilibrium is Markov if play depends on the history only through the firms’ beliefs about costs and calendar time. We characterize symmetric linear Markov equilibria as solutions to a boundary value problem. In every such equilibrium, given a long enough horizon, play converges to the static complete information outcome for the realized costs, but each firm only learns its competitors’ average cost. The weights assigned to costs and beliefs under the equilibrium strategies are non-monotone over time. We explain this by decomposing incentives into signalling and learning, and discuss implications for prices, quantities, and welfare. 2018-03-23T22:08:25Z 2018-03-23T22:08:25Z 2016-09 2016-02 2018-03-01T16:19:55Z Article http://purl.org/eprint/type/JournalArticle 0034-6527 1467-937X http://hdl.handle.net/1721.1/114280 Bonatti, Alessandro, Gonzalo Cisternas, and Juuso Toikka. “Dynamic Oligopoly with Incomplete Information.” The Review of Economic Studies (September 16, 2016): rdw049. https://orcid.org/0000-0002-9150-2334 https://orcid.org/0000-0003-0641-4960 https://orcid.org/0000-0003-0400-5733 http://dx.doi.org/10.1093/RESTUD/RDW049 Review of Economic Studies Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Oxford University Press MIT Web Domain |
| spellingShingle | Bonatti, Alessandro Cisternas Leyton, Gonzalo Sebastian Toikka, Juuso T Dynamic Oligopoly with Incomplete Information |
| title | Dynamic Oligopoly with Incomplete Information |
| title_full | Dynamic Oligopoly with Incomplete Information |
| title_fullStr | Dynamic Oligopoly with Incomplete Information |
| title_full_unstemmed | Dynamic Oligopoly with Incomplete Information |
| title_short | Dynamic Oligopoly with Incomplete Information |
| title_sort | dynamic oligopoly with incomplete information |
| url | http://hdl.handle.net/1721.1/114280 https://orcid.org/0000-0002-9150-2334 https://orcid.org/0000-0003-0641-4960 https://orcid.org/0000-0003-0400-5733 |
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