Alessandro Bonatti, Gonzalo Cisternas, Juuso Toikka. The Review of Economic Studies, 84(2), 503–546, 2017
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We consider learning and signaling in a dynamic Cournot oligopoly where firms have private information about their production costs and only observe the market price, which is subject to unobservable demand shocks. An equilibrium is Markov if play depends on the history only through the firms’ beliefs about costs and calendar time. We characterize symmetric linear Markov equilibria as solutions to a boundary value problem. In every such equilibrium, given a long enough horizon, play converges to the static complete information outcome for the realized costs, but each firm only learns its competitors’ average cost. The weights assigned to costs and beliefs under the equilibrium strategies are non-monotone over time. This can be explained by decomposing incentives into signaling and learning, and discuss implications for prices, quantities, and welfare.