TAO WANG

Type

Text

Type

Dissertation

Advisor

Brusco, Sandro. | Tauman, Yair | Liu, Ting | Jelnov, Artyom.

Date

2017-08-01

Keywords

Bertrand competition | Economic theory | cost uncertainty | Cournot competition | information acquisition | profit and welfare

Department

Department of Economics.

Language

en_US

Source

This work is sponsored by the Stony Brook University Graduate School in compliance with the requirements for completion of degree

Identifier

http://hdl.handle.net/11401/78209

Publisher

The Graduate School, Stony Brook University: Stony Brook, NY.

Format

application/pdf

Abstract

In the first part “Competitive Intelligence and Disclosure of Cost Information in Duopoly”, I consider a duopoly in which one firm can invest in competitive intelligence (CI) to learn its rival’s private cost before market competition. I show in equilibrium the firm invests in CI makes higher expected net profit than when it doesn’t invest. Ex ante both the firm being “spied” and the industry benefit (suffer) from CI under Cournot (Bertrand) competition while consumer surplus suffers under both types of competition. Overall CI in this environment enhances (reduces) social welfare when firms compete in Cournot (Bertrand) fashion. When the firm that invests in CI can disclose its private signal about rival’s cost credibly and costlessly, due to unraveling argument there’s full disclosure in equilibrium under both Cournot and Bertrand competition and the main results still hold qualitatively. Disclosure of private signal can increase or decrease the firm’s incentive to invest in CI, depending on the degree of convexity of the cost function associated with CI. In the second part “Information Acquisition, Signaling and Learning in Duopoly”, I study firms' incentives to acquire private information in a duopoly signaling game. Due to signaling, firms' first-period equilibrium prices are distorted above the optimal static prices. It is show that while firms benefit from obtaining more precise private information, the value of information is reduced by the price distortion due to signaling. Thus, compared with firms that do not attempt to manipulate rivals' beliefs, signaling firms acquire less precise information. An industry-wide trade-association acquiring information increases firm profit and may also increase consumer surplus, so allowing such collective action may be in the interest of competition authorities. | 83 pages

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