Information Sharing in Oligopoly: The Truth Telling Problem
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While under some circumstances information sharing in oligopoly may be beneficial, the literature ignores the possibility of strategic information sharing by assuming verifiability of data. I endogenize the incentives for truthful information sharing and prove that if firms have the ability to send misleading information, they will always do so. To overcome this problem I introduce a (costly) mechanism through which the firm will, in its own best interest, reveal the true value of its private information, even though outside verification is impossible. I show that in some cases benefits from information sharing exceed the signalling costs, while in other cases the reverse is true. The fact that I model a two-sided signalling enables me to mitigate the signalling-cost problem. Rather than burning money, oligopolistic rivals may exchange transfer payments, thereby significantly reducing signalling costs.
Source: RAND Journal of Economics
Ziv, Amir. "Information Sharing in Oligopoly: The Truth Telling Problem." RAND Journal of Economics 24, no. 3 (Fall 1993): 455-65.