Information exchange with cost uncertainty: an alternative approach and new results

Abstract

This paper further develops the standard modelling of information exchange between firms in the presence of cost uncertainty. In order to avoid consistency problems, we replace the normal distribution of the random variables, commonly used because of its convenient mathematical properties, by an alternative one, namely a non-symmetrically distributed random variable with a binomial positive outcome. This leads to new results concerning firms' information-disclosure policy: Confirming the empirical evidence and in contrast to the existing literature, we show that in Cournot markets firms never exchange their private information and in Bertrand markets only for very steep demand functions.