Financial Prices and Information Acquisition in Large Cournot Markets

Published paper

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.

Proposition 1

Proposition 1: Financial asset price precision decreases with the precision of firms’ private information, including equation (3.1).

Citation

Giacomo Rondina and Myungkyu Shim. 2015. “Financial Prices and Information Acquisition in Large Cournot Markets.” Journal of Economic Theory 158, Part B: 769–786. https://doi.org/10.1016/j.jet.2014.12.004 .