Economic conditions on exchange of technology and information : cournot's model applied to demand information risk in China

Abstract

A foreign firm is confronted with a demand information risk in the emerging Chinese market, resulting from information disparity between a foreign firm and a Chinese firm. This study analyzes such demand information risk and uses microeconomic theory to derive a management strategy. There are two main conclusions. Firstly, whether each firm adopts the demand information collection depends on the cost incurred in collecting its information. Furthermore, only one firm will collect the demand information if the gap in the demand information collection costs between both firms is considerable. Secondly, given that only the Chinese firm collects demand information, information sharing is enabled solely by a transaction involving information and technology, rather than information and money. We prove that each firm would be able to utilize the other's advantage if the variance of demand uncertainty were appropriate, not too small or large. Furthermore, we confirm that the possibility to realize such transaction increases when the expected Chinese market size and the technology gap between the foreign and Chinese firmsare considerable.