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Summary: 10/8/2010
1
23 Asymmetric information: silence,
signaling and suffering education
· We may know different things about the
lit f itquality of an item.
· The signal we give may tell the other how we
value it.
· A good signal needs to be differentially costly
across typesacross types.
Example
· Cournot games competing in quantities
· Each firm as marginal costsg
· cost = costMid +| e
· Each player knows his own costs. Opponent can reveal his
costs.
· Suppose you know both costs, but your opponent does not.
· Suppose it costs no money to reveal costs. Should you do
it?
O l l if l IfI h l I h· Only reveal costs if lower. IfI have low costs, I want the
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