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Markets for information: Of inefficient firewalls and efficient monopolies

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  • Cabrales, Antonio
  • Gottardi, Piero

Abstract

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.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 83 (2014)
Issue (Month): C ()
Pages: 24-44

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Handle: RePEc:eee:gamebe:v:83:y:2014:i:c:p:24-44

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Web page: http://www.elsevier.com/locate/inca/622836

Related research

Keywords: Information sale; Cheap talk; Conflicts of interest; Information acquisition; Firewalls; Market efficiency;

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References

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Cited by:
  1. Andrea Galeotti & Sanjeev Goyal, 2007. "The Law of the Few," Economics Discussion Papers, University of Essex, Department of Economics 636, University of Essex, Department of Economics.
  2. Viola Chen, 2008. "Essays in Applied Theory," Levine's Working Paper Archive 122247000000002243, David K. Levine.
  3. Aaron S. Edlin, 1997. "Is the Corner Electronics Store Violationg the Antitrust Laws? (or Why the Good Guys Aren't)," Levine's Working Paper Archive 1009, David K. Levine.

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