To Know or Not To Know: Strategic Inattention and Endogenous Market Structure

Cellini, Roberto ; Lambertini, Luca ; Ottaviano, Gianmarco I.P. (2015) To Know or Not To Know: Strategic Inattention and Endogenous Market Structure. Bologna: Dipartimento di Scienze economiche DSE, p. 27. DOI 10.6092/unibo/amsacta/4156. In: Quaderni - Working Paper DSE (987). ISSN 2282-6483.

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Abstract

We model an industry in which a discrete number of firms choose the output of their differentiated products deciding whether or not to consider the impact of their decisions on aggregate output. We show that two threshold numbers of firms exist such that: below the lower one there is a unique equilibrium in which all firms consider their aggregate impact as in standard oligopoly; above the higher threshold there is a unique equilibrium in which all firms disregard that impact as in standard monopolistic competition; between the two thresholds there are two equilibria, one in which all firms consider their aggregate impact and the other in which they do not. We then show that our model of strategic inattention is isomorphic to a model of strategic delegation with managerial compensation based on relative profit performance.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Cellini, Roberto
Lambertini, Luca
Ottaviano, Gianmarco I.P.
Keywords
information, strategic interaction, monopolistic competition, oligopoly, delegation
Subjects
ISSN
2282-6483
DOI
Deposit date
03 Mar 2015 10:21
Last modified
28 Oct 2015 13:51
URI

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