Competing Under Asymmetric Information: The Case of Dynamic Random Access Memory Manufacturing

Abstract

Much like in other semiconductor environments, dynamic random access memory (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. An oligopoly model of competition with correlated private information is developed in which firms make decisions about production and capacity. In this setting, firms consider the information their competitors are likely to hold, conditional on their own. We find that both firms and customers benefit when firms share information with their competitors. In particular, sharing information is profitable because market price decreases slowly with overproduction. When combined with the results from the information sharing literature, this paper highlights the need to assess information sharing policies on a case-by-case basis. This paper was accepted by Matthew Shum, marketing.

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