The Competitive Effects of Information Sharing
We investigate the impact of information sharing between rivals in a dynamic auction with asymmetric information. Firms bid in sequential auctions to obtain inputs. Their inventory of inputs, determined by the results of past auctions, are privately known state variables that determine bidding incentives. The model is analyzed numerically under different information sharing rules. The analysis uses the restricted experience based equilibrium concept of Fershtman and Pakes (2012) which we refine to mitigate multiplicity issues. We find that increased information about competitors’ states increases participation and inventories, as the firms are more able to avoid the intense competition in low inventory states. While average bids are lower, social welfare is unchanged and output is increased. Implications for the posture of antitrust regulation toward information sharing agreements are discussed.
We would like to thank numerous seminar audiences for their comments and questions. El Hadi Caoui provided excellent research assistance. Financial Assistance from the US-Israel Binational Science Foundation is greatly appreciated. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.