Dynamic Oligopoly with Incomplete Information
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cournot.pdf
Size
838.17 KB
Format
Adobe PDF
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2dc32efde2a6cda87a321c47610a22ad
Author(s)
Bonatti, Alessandro
Cisternas Leyton, Gonzalo Sebastian
Toikka, Juuso T
Date Issued
September 2016
Journal
Review of Economic Studies
Publisher
Oxford University Press
Citation
Bonatti, Alessandro, Gonzalo Cisternas, and Juuso Toikka. “Dynamic Oligopoly with Incomplete Information.” The Review of Economic Studies (September 16, 2016): rdw049.
Version
Author's final manuscript
Abstract
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.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1093/RESTUD/RDW049
