Informed Speculation with Imperfect Competition

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ID: 299443
1989
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Abstract
Competitive rational expectations models have the unsatisfactory property, dubbed the “schizophrenia” problem by Hellwig, that each trader takes the equilibrium price as given despite the fact that he influences that price. An examination of information aggregation in a non-competitive rational expectations model using a Nash equilibrium in demand functions shows that the schizophrenia problem is avoided by having each trader take into account the effect his demand has on the equilibrium price. Given a distribution of private information across traders, prices reveal less information than in the competition equilibrium, and prices no longer become fully informative in the limit as noise trading vanishes or as traders become risk neutral. With small traders, the model may become one of monopolistic competition, not perfect competition. In contrast to the competitive model, a reasonable model of endogenous acquisition of costly private information is obtained, even when traders are risk-neutral.
Reference Key
openalex_W1986096635 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Albert S. Kyle
Journal The Review of Economic Studies
Year 1989
DOI
10.2307/2297551
URL
https://doi.org/10.2307/2297551
Keywords Keywords not found

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