Premium
Can More Information About Rivals' Costs Decrease Welfare?
Author(s) -
Brito Duarte,
Pereira Pedro,
Vareda João
Publication year - 2016
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12096
Subject(s) - welfare , investment (military) , economics , microeconomics , monetary economics , business , market economy , politics , political science , law
We investigate if more information about rivals' costs increases welfare when firms compete in prices and cost‐reducing investment. When firms compete only in prices, a firm sets a higher price under partial information than under complete information if it faces an efficient rival, and a lower price otherwise. Thus, more information redistributes market share from the more efficient to the less efficient firm, with a negative impact on welfare. When firms also compete in cost‐reducing investment, more information leads a firm to decrease investment if it faces an efficient rival, and to increase investment otherwise. Welfare decreases if firms are sufficiently asymmetric and their products sufficiently differentiated.