Monopoly, competition and information acquisition |
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Authors: | Magdalena Dimitrova Edward E Schlee |
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Institution: | a American Express Company, 7740 N 16th Street, Phoenix, AZ 85020, USA;b Department of Economics, College of Business, Arizona State University, Main Campus PO Box 873806, Tempe, AZ 85287-3806, USA |
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Abstract: | An incumbent monopolist is uncertain about its linear demand, but can acquire public information at a cost. We determine how an entry threat affects the firm's information acquisition. If returns to scale are constant and the state-contingent demands become more dispersed as output increases, then entry reduces information acquisition. If, however, either the incumbent or entrant has increasing returns; or if the state-contingent demands are nonlinear or fail increasing dispersion, then entry can increase information. Finally, entry can hurt consumers. Although entry always increases output, it can decrease information. Consumers sometimes prefer a better informed monopoly to a duopoly. |
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Keywords: | Information acquisition Competition Welfare |
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