Information, market power, and price volatility
Name
SSRN-id3454310.pdf
Description
Submitted version
Size
314.13 KB
Format
Adobe PDF
Checksum (MD5)
546879b2e3e8e3120950bb3efa0c9cec
Author(s)
Bergemann, Dirk
Heumann, Tibor
Morris, Stephen
Date Issued
March 2021
Journal
RAND Journal of Economics
Publisher
Wiley
Citation
Bergemann, Dirk et al. "Information, market power, and price volatility." RAND Journal of Economics 52, 1 (March 2021): 125-150 © 2021 The RAND Corporation
Version
Original manuscript
Abstract
We consider demand function competition with a finite number of agents and private information. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. Regardless of the number of agents and the correlation of payoff shocks, market power may be arbitrarily close to zero (the competitive outcome) or arbitrarily large (so there is no trade). By contrast, price volatility is always lower than the variance of the aggregate shock across all information structures. Alternative trading mechanisms lead to very distinct bounds as a comparison with Cournot competition establishes.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1111/1756-2171.12364
