Asymptotic efficiency in Stackelberg markets with incomplete information

This paper examines the asymptotic (in)efficiency of Stackelberg markets with incomplete information. Firms who are early in the queue make their quantity choices based on limited information and their output choices are likely to deviate from those optimal under complete information. Due to the presence of both payoff externality and information externality, the output deviations of early firms have a lasting effect on all subsequent output decisions. Consequently, the total market output diverges from the competitive equilibrium output even as the number of firms goes to infinity. That is, Stackelberg markets with incomplete information are asymptotically inefficient with probability one.