Simultaneous and Sequential Competition with Asymmetric Information and Externalities

This paper examines the joint role of strategic timing, asymmetric private demand and cost information, and common ownership in shaping equilibrium outcomes in oligopolistic markets. We develop a three-firm model and study Cournot and Stackelberg competition. The main results are as follows. (1) Mover advantages are determined by relative signal precision: the leader benefits most when the second mover has a more precise signal, the second mover benefits most when the last mover has high signal precision, and the last mover benefits when both followers have sufficiently noisy signals. (2) Cournot competition generates greater consumer and total surplus and lower total profits than Stackelberg competition if neither follower has significantly higher signal precision than the leader. (3) Common ownership increases consumer and total surplus but reduces total profits in Stackelberg competition if and only if the last mover is not substantially better informed than the leader. These findings have implications for contests, public-good, common-resource and gas emission games with altruistic preferences. Since total profit in oligopoly models can be interpreted as aggregate welfare in these environments, the welfare rankings are reversed.