Information Exchange in Price Setting Mixed Duopoly

Abstract

Consider a dynamic Bertrand competition in mixed oligopoly, where a private firm competes with a social welfare maximizing public firm. Firms produce substitute products, face stochastic demand and each firm receive noisy signals on common stochastic demand. In this mixed oligopoly, we examine incentives of public and private firms to share their private signals through an independent trade agency and we characterize equilibrium outcomes. We established two main effects of information sharing: information sharing increases production efficiency by enabling firms to predict stochastic demand shocks better. However, more precise signals increase power of private firm to capture consumer surplus and lowers social welfare. In Perfect Bayesian equilibrium of the mixed oligopoly game, private firm shares all signals it receives with the public firm, whereas public firm shares no information with the private firm. The market outcome is never optimal: it satisfy neither of informational efficiency, production efficiency and allocative efficiency. © 2020 Elsevier B.V., All rights reserved.