Information in Cournot: Signaling with Incomplete Control

We embed signaling in the classical Cournot model in which several firms sell a homogeneous good. The quality is known to all the firms, but only to some buyers. The quantity-setting firms can manipulate the price to signal quality. Because there is only one price in a market for a homogeneous good, each firm incompletely controls the price-signal through the quantity decision. We characterize the unique signaling Cournot equilibrium in which the price signals quality to the uninformed buyers. We then compare the signaling Cournot equilibrium with the full-information Cournot equilibrium. Signaling is shown to increase the equilibrium price. Moreover, under certain conditions regarding the composition of buyers, the number of firms, and the distribution of costs across firms, the effects of signaling and market externality cancel each other. In other words, the profits under signaling Cournot equal the profits of a cartel in a full-information environment.

Keywords: Cournot, Homogeneous good, Learning, Quality, Signaling

JEL Classification: D21, D43, D82, D83, L15

Suggested Citation: Suggested Citation

Daher, Wassim and Mirman, Leonard J. and Santugini, Marc, Information in Cournot: Signaling with Incomplete Control (November 11, 2011). Available at SSRN: https://ssrn.com/abstract=1272263 or http://dx.doi.org/10.2139/ssrn.1272263

Wassim Daher

Gulf University for Science and Technology (GUST) ( email )

Department of Mathematics and Natural Sciences
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