STRATEGIC INFORMATION MANIPULATION IN DUOPOLIES

This paper studies a duopoly market in which firms can draw inferences concerning (uncertain) market demand from observations of their outpu ts and market price. Firms may adjust their outputs away from myopical ly optimal levels to affect the informativeness of the market price. B ecause firms' quantities are observed, firms can manipulate the extent to which belief revision occurs rather than the direction in which be liefs are revised (as in signal-jamming models). We develop conditions and present examples under which the value of information is positive and negative and under which firms will increase or decrease quantity to manipulate information.