Information acquisition under uncertainty: The case of labor-managed and profit-maximizing firms coexist Jianli Luo School of Business, Wenzhou University, Wenzhou, 325035, China abstract article info Article history: Accepted 24 July 2012 Keywords: Labor-managed firm Profit-maximizing firm Information acquisition Uncertainty This paper analyzes the output decision and welfare implications of acquiring information under uncertainty for the duopoly market coexisted by a labor-managed firm (LMF) and a profit-maximizing firm (PMF). By establishing objective functions of LMF and PMF, it constructs the theoretical framework to discuss the role of information in the duopoly firstly. Then, based on the comparative static analysis, it discusses the effects of the market demand information and cost information on expected output and welfare. Finally it compares the role of information in LMF with the case of PMF, and the role of information in the LMF–PMF duopoly with those of LMF–LMF duopoly and PMF–PMF duopoly. It is shown that whereas the LMF's behavior is anal- ogous to that of the PMF twin in some circumstances, the former may be entirely different from the latter in others. The LMF will be more sensitive to the information. © 2012 Elsevier B.V. All rights reserved. 1. Introduction One of the most intriguing problems in oligopoly theory is the impact of information acquisition on the activities and welfare of firms operating under uncertainty. In reality, there are several institu- tions through which firms can get information about demand or cost. Governmental agencies and trade associations are among those information-gathering organizations. The question of interest is whether and to what extent the information-gathering activity of such organiza- tions contributes to the welfare of producers, consumers and the whole society. A fundamental question for decision making under incomplete information is the value of information. The issue of information value and information transmission among firms was studied by Basar and Ho (1974) and Ponssard (1979) as applications of stochas- tic nonzero-sum games to an oligopolistic market with the PMFs. The works of Blackwell (1953) show that more information is beneficial in single-agent decision problems, while more information may have adverse effects in multiple-agent game. In any Bayesian equilib- rium, Einy et al. (2002) show that expected profits of the firm with an information advantage may be less than or equal to those of its rivals with less information. Einy et al. (2003) study the value of public in- formation in a Cournot duopoly under uncertainty and show that whether the value of the market demand or the cost of information is positive or negative depends on corresponding conditions. Kitti and Mallozzi (2011) extend the approach of Einy (Einy et al., 2003) to more general games with multiple equilibria and show that the value of information is λ-positive for any information field if it is pos- itive for Bayesian games with minimal information. By extending the result of Einy et al. (2002), Ori (2009) proves that a firm receives not less than its rival even if that firm's information advantage is only re- garding payoff-relevant data, but not necessarily payoff-irrelevant “sunspots”. Chokler et al. (2006) prove that whether there is an infor- mation advantage or disadvantage depends on firms' information setup. When the cross-effects are common value, the uninformed firm that commits to quantity will not have lower ex ante profits than a firm that has complete information about its cross-effects. In addition, there are many other researches focusing on the effect of information sharing on the firm's income and social welfare, includ- ing Novshek and Sonnenschein (1982), Sakai (Sakai, 1985, 1986; Sakai and Yamato, 1989), Vives (1984), Clarke (1983), etc. All the above mentioned researches of the information role focus on the case of profit-maximizing firms (henceforth PM firms, or PMF). However, there still exist some firms in Yugoslavia, America, England, France, Germany, China, Italy, etc., who do not aim at maxi- mizing profit, but strive to maximize share-per-worker, namely labor-managed firms (henceforth LM firms, or LMF). The LM firms range from all kinds of cooperatives, stock cooperative enterprises, such as plywood cooperatives, Spanish Mondragon cooperation com- plex, and employee stock ownership plans. The information acquisi- tion of LMFs is not understood as well as that of PMFs. In fact, although the working and performance of the LMF under uncertainty have been discussed by Luo and Zhong (2009), Hey and Suckling (1980), Muzondo (1979) and Sakai (1993), it appears that the role of information has not drawn attention in the mixed duopoly with LMF–PMF coexist. As is well known, labor-managed firms behave Economic Modelling 29 (2012) 2527–2532 E-mail address: luolinjian@gmail.com. 0264-9993/$ – see front matter © 2012 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.econmod.2012.07.013 Contents lists available at SciVerse ScienceDirect Economic Modelling journal homepage: www.elsevier.com/locate/ecmod