Rational Expectations with Imperfect Competition

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There is a large literature investigating the notion that in markets where knowledge is dispersed across different agents, prices serve not only to allocate resources but to transmit information. Agents expectations are assumed to be rational in the sense that they are aware of the information revealed by prices. Almost all work so far has concerned competitive markets or monopolies. A major emphasis has been on the amount of information that one can expect to be transmitted in such markets under rational expectations. The contribution of this project comes from investigating the nature of rational expectations equilibrium when some of the agents have sufficient market power to be able to affect prices but there is no monopoly. This is a very difficult problem because the amount of information transmitted becomes a matter of strategic choice. The project elucidates the nature of rational expectations equilibrium in such a framework of imperfect competition and compares the degree of information revelation with that in a competitive model.