Trade Associations as Information Exchange Mechanisms

Abstract

This article examines the incentives of firms competing in an oligopolistic industry to share information about an unknown demand parameter when such sharing takes place on a quid pro quo basis. The model predicts that if total cost functions are sufficiently convex, information sharing (such as through a trade association) is Pareto-preferred to a setting of private information and forms a Nash equilibrium. Expected consumer surplus also always increases when information is shared.