Asymmetric information and exchange of information about product differentiation

António Brandão, Joana Pinho*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


We introduce asymmetric information about consumers' transportation costs (i.e., the degree of product differentiation) in the model of Hotelling. When transportation costs are high, both firms have lower profits with asymmetric information than with perfect information. Contrarily, if transportation costs are low, both firms may prefer the asymmetric information scenario (the informed firm always prefers the informational advantage, while the uninformed firm may or may not prefer to remain uninformed). Information exchange is ex-ante advantageous for both firms, but ex-post damaging if transportation costs turn out to be low. If the information is unverifiable, the informed firm does not represent a reliable source of information, since it always prefers to announce that transportation costs are high and there is no contract that induces truthful revelation.
Original languageEnglish
Pages (from-to)166-185
Number of pages20
JournalBulletin of Economic Research
Issue number2
Publication statusPublished - 1 Apr 2015
Externally publishedYes


  • Asymmetric information
  • Horizontal differentiation
  • Hotelling model
  • Information exchange
  • Transportation costs


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