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Private Information, Strategic Behavior, and Efficiency in Cournot Markets

Xavier Vives
The RAND Journal of Economics
Vol. 33, No. 3 (Autumn, 2002), pp. 361-376
Published by: Wiley on behalf of RAND Corporation
Stable URL: http://www.jstor.org/stable/3087462
Page Count: 16
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Private Information, Strategic Behavior, and Efficiency in Cournot Markets
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Abstract

When analyzing a Cournot market with strictly convex costs dependent on a private information parameter, do we err more by ignoring market power or by ignoring the impact of incomplete information? Is the welfare loss at the market outcome driven by private information or by market power? The answer to both questions is that in large enough markets, abstracting from market power provides a much better approximation than abstracting from private information. Let n index the size of the market and the (free entry) number of firms. Then the effect of market power (private information) is of the order of 1/n $(1/\sqrt n)$ for prices and 1/n2 (1/n) for per-capita deadweight loss.

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