Cournot competition and the social value of information

Myatt, D P and Wallace, C (2015) Cournot competition and the social value of information. Journal of Economic Theory, 158 (Part B). pp. 466-506. ISSN 0022-0531

Abstract

In a differentiated-product Cournot model, each supplier receives informative signals about demand. The cross-industry correlations of the signals differ: more public signals have higher correlation coefficients. In equilibrium, information is used inefficiently. From the industry's perspective, information is over-used, and too much emphasis is placed on relatively public signals; from the consumer's perspective, information is under-used, and too much emphasis is placed on relatively private signals. Welfare is enhanced by increasing the use of information (as desired by consumers) but re-balancing that use away from public signals (as desired by the industry). If information is costly and endogenously acquired, then suppliers acquire too much new information, but they use it too little.