Monopoly, competition, and information production

This dissertation investigates the effect of competition on the choice of a firm to acquire information about its unknown linear demand function. A comparison is drawn between the informativeness of a first period decision made by an isolated monopolist and the decision made by an incumbent threatened by entry in period two. Four different assumptions are made regarding what the entrant observes: (1) public information (entrant observes both incumbent quantity and price); (2) signal jamming (entrant observes only price); (3) private information (entrant observes only quantity); (4) secret information (entrant observes neither). A hypothesis is examined that a monopolist threatened by entry acquires less information than a two-period monopolist because of a public good effect of information production.; Chapter 1 shows that under public information, given linear demands with constant returns to scale and interior solutions, an incumbent threatened by entry acquires less information than a two-period monopolist. In the cases of private and secret information, the threatened incumbent acquires as much information as an isolated monopolist. In the case of signal jamming, the threatened incumbent acquires more information if the uncertainty is small.; Chapter 2 presents two extensions to the basic model. First, linear demands with increasing returns to scale and corner solutions are examined, and it is shown that an incumbent threatened by entry may also acquire more information than an isolated monopolist under public, private, and secret information. The second extension examines information acquisition across information assumptions. A monopolist threatened by entry is shown to acquire more information under private and secret information than under public information. Given a small level of uncertainty, the case of signal jamming yields a higher level of information production than the other three cases.; Chapter 3 analyzes welfare under public information and a two-period monopoly is shown to be able to produce a higher consumer surplus than a sequential entry duopoly. Conditions for general demand curves are established under which a social planner chooses to invest more in information than a monopolist.