Figure 3: Binary information acquisition decisions as a function of inverse cost of information
(x-axis) and the fixed precision of the private signal (y-axis): Environments in which neither
firm acquires private information (unshaded), Firm 1 acquires private information and Firm 2
does not (lightly shaded), and both firms acquire private information (darkly shaded)
1
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0.8
0.7
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0.5
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Figure 3 shows a partition of the universe of possible environments, indexed by the inverse
relative cost of information and fixed precision of the available signal. Firms make discrete
choices of whether to acquire the signal. Whether firms acquire the signal depends on the
signal's cost, its (fixed) quality, and--most importantly--whether the firm is first mover or not.
In the unshaded region, neither firm acquires information because costs of information are
high relative to the cost savings in deviating from the ideal location a. In the darkly shaded
region, both firms acquire information because information costs are relatively low. In the
lightly shaded region, however, Firm 1 acquires information but Firm 2 does not. This
difference is purely the result of first- and second-mover status, as Firm 2 would have
acquired the signal had it not been able to freely extract information by observing Firm 1's
location.