Effect of Risk Aversion on the Incentive to Share Information

This paper presents a proof that oligopoly firms have the incentive to share their private information about the stochastic market demand if they are sufficiently risk averse. A highly risk averse firm is willing to share its information even when the rival firm does not have any information of its own. These results are in constrast with the results of previous studies of risk neutral firms, and offer a theoretical interpretation of information pooling mechanisms like trade associations as bona fide information exchange mechanisms rather than as collusion facilitation organizations. [D82, LI5]. 1992, Taylor & Francis Group, LLC. All rights reserved.

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