Entry, Fixed Costs and the Aggregation of Private Information.

This article investigates the ability of the price system to aggregate private information in a market of uncertai n size and where set-up costs are incurred by entrants. It is shown t hat the equilibrium is random even when the totality of private infor mation is so large that aggregate uncertainty is virtually nonexisten t. In particular, the limiting equilibrium does not approach the full -information, Walrasian outcome. Hence, the model identifies a techno logical factor (increasing returns), which gives rise to informationa l losses. Copyright 1987 by The Review of Economic Studies Limited.