The exchange of cost information between asymmetrically informed firms

Abstract

The exchange of information among firms is a common occurrence, often done through the auspices of a trade association. This paper seeks to gain some insights on the formation of trade associations as information gathering and exchange mechanisms. First, an explicit expense attributed to information exchange is included. As the expense of exchanging cost information increases fewer types of firms desire to reveal their private information. Second, a thorough characterization of the timing of information acquisition and release is made. It is shown that firms prefer to know their own cost information before agreeing to exchange this information. Finally, it is demonstrated that when information exchange is made contingent upon all firms agreeing to exchange, complete information exchange can occur even if there is a positive cost incurred by the firms in forming a trade association.