Underinvestment in Information: Coalition Stability and Cost-Sharing in Oligopolies

Abstract This paper develops a model of information acquisition in Cournot oligopolies where firms face a fixed cost to obtain perfectly informative demand signals. Firms may act independently or form cost-sharing alliances to jointly acquire the signal. We characterize stable coalition structures using the Strong Nash Equilibrium concept, which rules out profitable deviations by any subset of firms. The analysis yields three key findings: (i) equilibrium information acquisition is generally below the socially optimal level due to uninternalized spillovers, (ii) only a single cost-sharing alliance can be stable, and (iii) cost and market structure jointly determine which of four distinct coalition outcomes emerges in equilibrium. The results highlight a structural underinvestment in information and suggest that policy tools, such as data-sharing mandates, subsidies, or safe harbors, may be needed to reach an efficient informational scale.