Asymmetric information and product differentiation

We show that information asymmetry may not cause any distortion in product differentiation. This contrasts with the main result of the literature on signaling, which stresses that information asymmetry has a non-negligible impact on strategic behavior. A thorough analysis of the counter-incentives for information concealment shows that much is going on beneath the surface to yield the same equilibrium behaviors under complete and incomplete information. The absence of visible changes in equilibrium locations relies on invisible changes in strategies. There is a crucial modification in the follower's best response to the incumbent's location due to incomplete information. (C) 2002 Elsevier Science B.V. All rights reserved.