Document Type
Discussion Paper
Publication Date
9-1-2019
CFDP Number
2200
CFDP Pages
37
Journal of Economic Literature (JEL) Code(s)
C72, D43, D44, D83, G12
Abstract
We consider demand function competition with a finite number of agents and private information. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. In particular, regardless of the number of agents and the correlation of payoff shocks, market power may be arbitrarily close to zero (so we obtain the competitive outcome) or arbitrarily large (so there is no trade in equilibrium). By contrast, price volatility is always less than the variance of the aggregate shock across all information structures.
Recommended Citation
Bergemann, Dirk; Heumann, Tibor; and Morris, Stephen, "Information, Market Power and Price Volatility" (2019). Cowles Foundation Discussion Papers. 51.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/51