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 cost. The sensitivity of price and output to cost disturbances decreases as more firms choose to purchase information. The equilibrium industry share of informed firms increases as the cost of information

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... alls and total cost variability increases. The equilibrium share of informed firms is largest when there is a comparable degree of variability in both industrywide and firm-specific costs.