INFORMATION SHARING IN OLIGOPOLY - THE TRUTH-TELLING PROBLEM

While under some circumstances information sharing in oligopoly may be beneficial, the literature ignores the possibility of strategic infor mation sharing by assuming verifiability of data. I endogenize the inc entives for truthful information sharing and prove that if firms have the ability to send misleading information, they will always do so. To overcome this problem I introduce a (costly) mechanism through which the firm will, in its own best interest, reveal the true value of its private information, even though outside verification is impossible. I show that in some cases benefits from information sharing exceed the signalling costs, while in other cases the reverse is true. The fact t hat I model a two-sided signalling enables me to mitigate the signalli ng-cost problem. Rather than burning money, oligopolistic rivals may e xchange transfer payments, thereby significantly reducing signalling c osts.