Markets for information : of inefficient firewalls and efficient monopolies
Games and economic behavior, 2014, Vol. 83, pp. 24-44
CABRALES, Antonio, GOTTARDI, Piero, Markets for information : of inefficient firewalls and efficient monopolies, Games and economic behavior, 2014, Vol. 83, pp. 24-44 - https://hdl.handle.net/1814/33933
Retrieved from Cadmus, EUI Research Repository
In this paper we study market environments where information is costly to acquire and is also useful to potential competitors. Agents may sell, or buy, reports over the information acquired and choose their trades in the market on the basis of what they learnt. Reports are unverifiable - cheap talk messages - hence the quality of the information transmitted depends on the conflicts of interest faced by the senders. We find that, when information has a prevalent horizontal differentiation component, in equilibrium information is acquired when its costs are not too high and in that case it is also sold, though reports are typically noisy. The market for information is in most cases a monopoly, and there is underinvestment in information acquisition. We also show that regulatory interventions, in the form of firewalls, only make the inefficiency worse. Efficiency can be attained with a monopolist selling differentiated information, provided entry is blocked.
Cadmus permanent link: https://hdl.handle.net/1814/33933
Full-text via DOI: 10.1016/j.geb.2013.10.008
ISSN: 0899-8256; 1090-2473
Publisher: Academic Press
Keyword(s): Information sale Cheap talk Conflicts of interest Information acquisition Firewalls Market efficiency Conflicts-of-interest auctions industry recommendations acquisition disclosure networks entry stock talk
Initial version: http://hdl.handle.net/1814/10679
Version: Published version of EUI ECO WP 2009/11
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