We analyze the role of information for price and output adjustment when competitive firms with rational expectations cannot directly distinguish between industrywide and firm-specific cost disturbances. Firms may become informed about industrywide cost conditions by acquiring information at a...

This paper analyzes the interaction of information acquisition and inventory flexibility with industry adjustment to imperfectly perceived cost and demand disturbances. Improved information about disturbances are unperceived and dampens the use of inventories. Reduced inventory flexibility...