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How Does Competition Affect Incentives for Market Research?

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  • Ahmed, Rafayal
  • Shopp, Colin

Abstract

We analyze firms’ incentives to acquire information about market demand in a differentiated goods duopoly setting. We find two distinct benefits of having better information. Firstly, with better information, each firm can better match its price to demand. This benefit is decreasing in the level of market competition. Secondly, better information allows each firm to coordinate their prices with each other in different states, and each firm can make better use of its own information if the other firm acquires better information. This benefit is inverse u-shaped in the level of competition. Based on which effect dominates, each firm’s total benefit from information can either be decreasing, or inverse u-shaped in the level of competition. Given endogenous information acquisition decisions by firms, the effect of competition on consumer welfare is ambiguous.

Suggested Citation

  • Ahmed, Rafayal & Shopp, Colin, 2022. "How Does Competition Affect Incentives for Market Research?," MPRA Paper 118311, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:118311
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    File URL: https://mpra.ub.uni-muenchen.de/118311/1/Market%20Research%20and%20Competition.pdf
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    References listed on IDEAS

    as
    1. Hwang, Hae-shin, 1995. "Information Acquisition and Relative Efficiency of Competitive, Oligopoly and Monopoly Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 325-340, May.
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    3. Esther Hauk & Sjaak Hurkens, 2001. "Secret information acquisition in Cournot markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(3), pages 661-681.
    4. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
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    6. Nicola Persico, 1996. "Information Acquisition in Affiliated Decision Problems," Discussion Papers 1149, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Information acquisition; Bertrand duopoly; signals; competition.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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