eco331-10-ValueOfInformationHandout

# eco331-10-ValueOfInformationHandout - Overview A Monopoly...

This preview shows pages 1–7. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Overview A Monopoly Problem Signals Eco331: Value of Information Marciano Siniscalchi November 9, 2009 Overview A Monopoly Problem Signals Overview Dynamic choice: take actions at multiple points in time Value of Information: two choices : Time 1 : Acquire vs. Do not acquire information Time 2 : Make decision, possibly given information Information is good, provided one uses it optimally Foundations: Static vs. Dynamic Choice Models: Information partitions and Signals Overview A Monopoly Problem Signals The Big Picture: No Information ξ ( s 1 , a 1 ) s 1 ξ ( s 2 , a 1 ) s 2 ξ ( s 3 , a 1 ) s 3 ξ ( s 4 , a 1 ) s 4 a 1 ξ ( s 1 , a 2 ) s 1 ξ ( s 2 , a 2 ) s 2 ξ ( s 3 , a 2 ) s 3 ξ ( s 4 , a 2 ) s 4 a 2 No Info Overview A Monopoly Problem Signals The Big Picture: With Info ξ ( s 1 , a 1 )- M s 1 ξ ( s 2 , a 1 )- M s 2 a 1 ξ ( s 1 , a 2 )- M s 1 ξ ( s 2 , a 2 )- M s 2 a 2 I 1 ξ ( s 3 , a 1 )- M s 3 ξ ( s 4 , a 1 )- M s 4 a 1 ξ ( s 3 , a 2 )- M s 3 ξ ( s 4 , a 2 )- M s 4 a 2 I 2 Info Ex-Ante Interim Ex-Post Overview A Monopoly Problem Signals The Basic Model: No Uncertainty Monopolistic firm faces demand Q ( p , s ) = s- p , s ∈ R . Marginal cost c = 2. Parameter s ∈ [0 , 10] . For now, s is known . Linear utility: u ( x ) = x . Thus, maximize profits . In preparation for future development, let profits be X p ( s ) = ( p- 2) · Q ( p , s ) . Then firm solves (disregarding constraints...) max p X p ( s ) = max p ( p- 2) · ( s- p ) = max p p · ( s + 2)- p 2- 2 s . First-order condition: ∂ X p ( s ) ∂ p = s +2- 2 p ⇔ p * ( s ) = 1 2 s +1 , X * ( s ) = 1 2 s- 1 2 . Overview A Monopoly Problem Signals Introducing Uncertainty Now assume firm does not know...
View Full Document

## This note was uploaded on 11/17/2009 for the course ECONOMICS 331 taught by Professor Marciano during the Spring '09 term at Northwestern.

### Page1 / 15

eco331-10-ValueOfInformationHandout - Overview A Monopoly...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online