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Common knowledge of price and expected cost in an oligopolistic market

Author: Nielsen, Lars Tyge INSEAD Area: Finance Series: Working Paper ; 90/58/FIN/EPS/TM Publisher: Fontainebleau : INSEAD, 1990.Language: EnglishDescription: 49 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: If a stochastically monotone aggregate of asymmetrically informed agents' expectations of a random variable is common information, then the agents must agree on their expectations. This result is applied to a model of an oligopolistic market where firms have a random component of cost. It makes possible a characterisation of the naive Cournot-Nash and Bayes-Cournot equilibria where the price is common knowledge. On this basis, the existence of rational expectations equilibria is shown, the full communication equilibria are characterised, and the question of uniqueness is answered
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If a stochastically monotone aggregate of asymmetrically informed agents' expectations of a random variable is common information, then the agents must agree on their expectations. This result is applied to a model of an oligopolistic market where firms have a random component of cost. It makes possible a characterisation of the naive Cournot-Nash and Bayes-Cournot equilibria where the price is common knowledge. On this basis, the existence of rational expectations equilibria is shown, the full communication equilibria are characterised, and the question of uniqueness is answered

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