8 - Asymmetric Information

Summary

Chapter 8 delves into the complexities introduced by asymmetric information, where some contestants possess more information than others, or neither of the contestants has complete information about the characteristics of the others. The chapter examines contests in which the true common value of the prize may be unknown to certain contestants, such as an incumbent having a better understanding of the value of office than a challenger, or a current resource owner having more information about its true value than potential entrants. It also examines situations where no contestant has complete information about the value assigned for each contestant to the prize, such as companies competing to develop a new product or technology. Each company knows its own valuation of the potential market but does not know the competitor’s valuation. The chapter also analyzes the existence and properties of equilibrium and other related questions, such as the following: How do outcomes in complete and incomplete information scenarios compare? Should a well-informed planner disclose information to maximize total effort in a contest involving both informed and uninformed contestants?