Open the Quality or Not? The Analysis of Information Strategy on Cournot Competition

Competing firms often have private information about the quality of their products before producing stage. While nowadays, some firms would like to make the quality information public, which leads to the quality information sharing between competitors. This paper studies the incentive for the quality information sharing between competing firms who sell substitutable products under Cournot market. The equilibrium output quantities and the corresponding sale prices for two products are analyzed under the scenarios of information sharing and no information sharing respectively. The result shows that under both information structures, the firm with higher degree of quality produces more products and sets higher price. Compared with no information sharing case, information sharing enables the firm with higher degree of quality to increase its producing quantity and sale price. Moreover, sharing quality information is the dominant strategy of two firms, since sharing information allows competitive firms to make their decisions more rationally and realize a win-win situation. This research provides useful managerial insights for firms to decide whether to share quality information or not.