Duopoly information exchange: The case of unknown slope

We model information exchange between duopolists facing a common random demand. The slope of the common demand curve facing the firms is assumed unknown, and firms observe private signals about this slope. We show that, for sufficiently large variation in the demand slope, firms earn strictly higher profit when they share their information rather than keeping it private-even with constant marginal costs and homogeneous goods. In this case, it is a Nash equilibrium for the duopolists to share their information in a quid pro quo information exchange. Consistent with earlier models, information exchange raises welfare.