Premium
X‐Inefficiency, Competition and Market Information[Note 1. We would like to thank Michele Grillo, Jonathan Haskel, ...]
Author(s) -
Bertoletti Paolo,
Poletti Clara
Publication year - 1997
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00053
Subject(s) - inefficiency , competition (biology) , incentive , adverse selection , private information retrieval , scope (computer science) , industrial organization , duopoly , microeconomics , economics , point (geometry) , work (physics) , business , cournot competition , mechanical engineering , ecology , statistics , geometry , mathematics , computer science , programming language , biology , engineering
Whether competition forces firms toward efficient behaviour is an open question. We consider a duopoly with firms run by managers and affected by adverse selection on costs. In contrast to recent literature, we point out that, to have a genuine effect on firm X‐inefficiency, competition must change managerial incentives. By introducing the availability of some signal on the rivals' behaviour we show that, if costs are correlated, the contractual use of that signal can render private managerial information uninfluential. This result stresses the informational role of the market and suggests scope for future work.