Asymmetry of Information and Competitive Advantage in a Closed, Dynamic Duopolistic System—Consequences for Regulatory Authorities

Abstract

This article explains how competitive advantage can be achieved by a producer to the detriment of another producer using the Consolidated Model of Financial Predation (CMFP). The article refers to recent literature on this particular model, including findings resulting from a functional magnetic resonance imaging (fMRI) study in which 20 participants took financial decisions while in a brain scanner. The surprise element is thought to play a key role in the capacity of one producer to quickly seize a market opportunity against his only competitor based on asymmetry of information. The main conclusion is that asymmetry of information provides market players an opportunity to catch their competitors by surprise, thus gaining a competitive advantage, which can turn into predatory practices. The article shows that regulatory authorities can identify those responsible for the 2008 market chaos by identifying those who provoked and sustained asymmetry of information to their advantage with the purpose of causing harm to the other market agents, by surprise.

TOPICS: In markets, legal/regulatory/public policy