Magdalena Dimitrova and Edward E.Schlee
"Monopoly, competition, and information acquisition"
JEL codes: L15, D83, D43
Keywords: information acquisition, competition, welfare

Abstract: An incumbent monopolist is uncertain about its linear demand, but can acquire public information at a cost. We determine how an entry threat affects the firm's information acquisition. If returns to scale are constant and the state-contingent demands become more dispersed as output increases, then entry reduces information acquisition. If, however, either the incumbent or entrant has increasing returns; or if the state-contingent demands are nonlinear or fail increasing dispersion, then entry can increase information.
Finally, entry can hurt consumers. Although entry always increases output, it can decrease information. Consumers sometimes prefer a better informed monopoly to a duopoly.

Pre-publication pdf copy; figure 1; figure 2; figure 3.