Competitive Intelligence and Disclosure of Cost Information in Duopoly
- PDF / 631,855 Bytes
- 35 Pages / 439.37 x 666.142 pts Page_size
- 88 Downloads / 224 Views
(0123456789().,-volV)(0123456789().,-volV)
Competitive Intelligence and Disclosure of Cost Information in Duopoly Tao Wang1 Springer Science+Business Media, LLC, part of Springer Nature 2019
Abstract This paper considers a duopoly in which one firm doesn’t know its rival’s realized cost but can invest in competitive intelligence (CI) to gather information before competition. The incentive to invest in CI and the net benefit from CI investment are higher under Bertrand competition than under Cournot competition. Ex ante, both the firm that is being spied upon and the industry benefit (suffer) from a rival’s CI investment under Cournot (Bertrand) competition while consumer surplus suffers under both types of competition. Overall, CI investment increases (reduces) social welfare when firms compete a` la Cournot (Bertrand). Ex post disclosure of cost information that is acquired may either increase or decrease the incentive to invest in CI but does not affect the qualitative results with respect to profit and welfare analyses. Keywords Intelligence Cost uncertainty Cournot and Bertrand duopoly Information acquisition Disclosure ‘‘One of the most important—and toughest—jobs of a manager is ‘seeing through’ the competition: understanding the strategy, cost structure, and pricing models of the companies that you bump up against in the marketplace.’’ Quoted from the back cover of Fuld (2010). Robert Crandall, former chairman and CEO of American Airlines.
1 Introduction Competitive Intelligence (abbreviated as ‘‘CI’’ henceforth) refers to a systematic and ethical program for gathering and analyzing information that can affect a company’s decisions and operations.1 As highlighted by the words of Robert Crandall, 1
See Nasheri (2005), pp. 73–74. A related but different aspect of intelligence is industrial espionage, which involves acquisition of information by theft, bribery or coercion, and is regarded as illegal.
& Tao Wang [email protected] 1
Institute for Social and Economic Research, Nanjing Audit University, No. 86 West Yushan Road, Pukou District, Nanjing, Jiangsu Province, China
123
T. Wang
collecting rival firms’ private business information through the use of intelligence is challenging yet rewarding, since the information that is gleaned could be used to understand better rivals’ operation, capabilities, future strategies, long-term goals etc., which in turn may help the firm to adjust its own business strategies and gain competitive advantage.2 Firms’ CI investments have increased substantially in the recent decade. According to an estimation by Gartner Inc. in 2017, global revenue in business intelligence was forecasted to reach $18.3 billion in 2017, an increase of 7.3% from 2016. The market was predicted to grow to $22.8 billion by the end of 2020.3 Despite the increasing popularity of CI, many important questions have not received enough attention from the economic literature. For instance, how should a firm form new strategies against its rival that is using the information collecte
Data Loading...
