Simultaneous Signaling in Games of Incomplete Demand Information

As is well-known from the literature on oligopolistic competition with incomplete information, firms have incentives to share private value demand information. However, by assuming verifiability of demand data, these models ignore the possibility of strategic misinformation. We show that if firms can send misleading demand information, they will always do so. Furthermore, we derive a costly signaling mechanism implementing demand revelation, even without verifiability. For the case of a gamma distribution of the firms’ demand variables, we prove that depending on mean and variance the expected gains from information revelation exceed the expected cost of signaling only if the products are sufficiently differentiated.