Dynamic Oligopoly with Incomplete Information

Résumé

We consider signaling and learning dynamics in a Cournot oligopoly where firmshave private information about their production costs and only observe the marketprice, which is subject to unobservable demand shocks. An equilibrium isMarkovif it depends on the history of play only through the firms' beliefs about costs andcalendar time. We characterize symmetric linear Markov equilibria as solutions toa boundary value problem. In every such equilibrium, given a long enough horizon,play converges to the static complete information outcome for the realized costs, buteach firm only learns its competitors' average cost. The weights assigned to privateand public information under the equilibrium strategies are non-monotone over time.We explain this by decomposing incentives into signaling and learning, and discussimplications for prices, quantities, and profits.