INFORMATION AND COMPETITIVE ADVANTAGE

We study the channels through which private information affects the competitive position of firms in the marketplace. Firms try to gain a competitive advantage via strategic investments in cost reduction or demand improving effort in an uncertain context. It is found that, under regularity conditions, an improvement in the information precision of a firm has always a favorable impact in its competitive position and profitability. The rivals are hurt if the market is characterized by quantity competition but favored if price competition prevails. A better informed competitor is thus a 'nicer' competitor under Bertrand competition but the opposite happens under Cournot competition. © 1990.