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Dynamic Models of Oligopoly by J. Tirole, D. Fudenberg

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6. INVESTING IN DISINFORMATION

6a. Introduction

History matters not only through its effect on tangible variables, but also through the information it conveys to competitors. Oligopolists are concerned by many variables they cannot estimate precisely. Among these are the cost structure or more generally the objective function of their opponents, the state of the market or its potential, etc. Competitors may also have trouble observing each others’ actions. Oligopolistic interaction must then be formalized as a situation of incomplete or imperfect information. In such a world actors may want to

1. exploit the lack of information of their opponents;

2. manipulate the latter’s information in order to derive benefits later on.

This second aspect ...

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