Competing Under Asymmetric Information: The Case of DRAM Manufacturing

Competing Under Asymmetric Information: The Case of DRAM Manufacturing

December 2014Working Paper No. 3133

Much like in other semiconductor environments, DRAM manufacturers face significant demand uncertainty before production and capacity decisions can be implemented. This paper investigates the role of market information in DRAM manufacturing, and the consequences of allowing information sharing in the industry. A dynamic oligopoly model of competition with correlated private information is developed, where firms make decisions about production and capacity. In this setting firms consider the likely information their competitors are likely to hold, conditional on their own. Our results indicate that whether the quality of the information available to firms has a positive effect on their performance depends on their installed capacities. Moreover, when capacities are endogenized we find both firms and consumers benefit when firms share information with their competitors. When combined with the previously available predictions of the information sharing literature this result highlights the need to assess information sharing policies on a case-by-case basis.