The value of information in oligopoly with demand uncertainty |
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Authors: | Dan Sasaki |
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Institution: | (1) Present address: Department of Economics, University of Exeter, EX4 4PU Exeter, Devon, U.K. |
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Abstract: | This paper discusses the value of information in supermodular and submodular games, using a simple duopoly model where the
level of demand is uncertain. It is shown that the value of information issuperadditive (resp.,subadditive) between players if the game issupermodular (resp.,submodular). For example, in a Bertrand (resp., Cournot) market with (possibly imperfect) substitute products, one firm's information
acquisition increases (resp., decreases) the other firm's incentive to acquire the same information. Furthermore, when the
game is either supermodular or submodular, the value of information is higher when the player isexpected to be informed according to the opponent's belief than when the player is expected to be uninformed; this result is reversed
when the game has asymmetric modularity (i.e., one player's action is substitutional to the other's, and the latter's action
is complemental to the former's). These qualitative observations have a potential to be applied to a larger class of games
with uncertainty where payoffs are smooth (e.g., twice continuously differentiable) in actions and states. |
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Keywords: | superadditivity subadditivity strategic complementarity strategic substitution supermodularity submodularity |
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