Market Structure and Product Cost Information

One common reason that firms do not update costing systems to improve cost information is the tradeoff deficit between benefits and implementation costs of such an updated system. This may be true in many cases; but there are situations in that more accurate product costs result in lower profit even if there is no implementation cost. In a two-product industry, we consider two information sources improving the product costs' accuracy. We show that a two-product monopolist's more accurate costs always increase its profitability regardless of the information sources; duopolists' more accurate product costs may or may not improve their profit. Product cost information has a non-negative direct impact on their profitability due to the improved product mix and an indirect impact upon their profitability due to the altered relative competitiveness in the product markets. We identify and examine useful scenarios in which the indirect impact is positive, zero, or negative