Uncertain demand and the gathering of information: a game-based perspective

I study a dynamic problem with uncertainty about demand when there are two monopolists selling in independent markets with unknown demand. Each monopolist’s objective is to find a production plan that maximizes the expected profit by balancing the incentive to increase revenues and the cost of information gathering. Meanwhile, it is possible to freely obtain information from the other firm. Information reduces uncertainty for everyone and, therefore, is a public good. Hence, firms have an incentive to free ride on others’ information acquisition. This incentive leads to underinvestment in information acquisition on a two-period horizon and to delayed information acquisition over an infinite horizon.