Industry performance indices and the economics of information: New perspectives and caveats
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Industry indices, be they conduct or performance based, frequently guide government intervention activities and are used for both predictive and prescriptive purposes. Unfortunately, few existing indices of industrial concentration are based on underlying economic theory, and those that are based on theory are based on models of perfect information. We derive a general performance measure relevant for industries that experience imperfect information. We do so by specifying a social welfare function that reflects the objectives of the policymaker and maps characteristics of industry equilibria under uncertainty into a real number that summarizes industry performance. The importance of explicitly accounting for the information structure of an industry is illustrated by deriving a reduced form for the performance measure valid when a monopolist faces random demand. 1992 Kluwer Academic Publishers.
