Capacity choice and duopoly incentives for information sharing

We examine a three-stage game in which duopolists face a random demand intercept. The firms first choose capacities, then decide whether to commit to share the private information they will receive about the intercept. After the private information is observed, firms choose output levels. Comparing the results to an alternative model without capacity choice or capacity constraints, we show the existence of a capacity choice stage may reverse the incentives to share information, and lead to equilibria in which information sharing occurs. We use binary uncertainty since the common linearnormal model cannot handle capacity constraints.