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Financial prices and information acquisition in large Cournot markets

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  • Rondina, Giacomo
  • Shim, Myungkyu

Abstract

In the context of a large Cournot market with dispersedly informed firms, we show that while output decisions are strategic substitutes, private information acquisition decisions can be strategic complements. The reversal of incentives operates through the informational role played by the price of a financial asset whose payoff depends on firms' output decisions. Our results rely on a novel mechanism whereby, holding fixed the private information of financial traders, when firms become more privately informed the financial asset price becomes less informative.

Suggested Citation

  • Rondina, Giacomo & Shim, Myungkyu, 2015. "Financial prices and information acquisition in large Cournot markets," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 769-786.
    • Handle: RePEc:eee:jetheo:v:158:y:2015:i:pb:p:769-786
    DOI: 10.1016/j.jet.2014.12.004
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    References listed on IDEAS

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    Cited by:

    1. Kim, Jin Yeub & Shim, Myungkyu, 2019. "Does higher firm profit dispersion reflect greater micro uncertainty?," Economics Letters, Elsevier, vol. 176(C), pages 35-38.
    2. Keeyoung Rhee & Myungkyu Shim & Ji Zhang, 2021. "State-Promoted Investment for Industrial Reforms: an Information Design Approach," Papers 2105.09576, arXiv.org.
    3. Pavan, Alessandro & Vives, Xavier, 2015. "Information, Coordination, and Market Frictions: An Introduction," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 407-426.
    4. Nezafat, Mahdi & Schroder, Mark & Wang, Qinghai, 2017. "Short-sale constraints, information acquisition, and asset prices," Journal of Economic Theory, Elsevier, vol. 172(C), pages 273-312.
    5. Xiong, Yan & Yang, Liyan, 2021. "Disclosure, competition, and learning from asset prices," Journal of Economic Theory, Elsevier, vol. 197(C).

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    More about this item

    Keywords

    Dispersed information; Information acquisition; Cournot market; Grossman–Stiglitz;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • G1 - Financial Economics - - General Financial Markets

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