Markets for Information: Of Inefficient Firewalls and Efficient Monopolies
AbstractIn this paper we study, within a formal model, market environments where information is costly to acquire and is of use also to potential competitors. Agents may then sell, or buy, reports over the information acquired and choose the 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, 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. Also, the market for information tends to be a monopoly, and there is inefficiency given by underinvestment in information acquisition. Regulatory interventions in the form of firewalls, limiting the access to the sale of information to agents uninterested in trading the underlying object, only make the inefficiency worse. Efficiency can be attained with a monopolist selling differentiated information, provided entry is blocked. The above findings hold when information has a prevalent horizontal differentiation component. When the vertical differentiation element is more important firewalls can in fact be beneficial.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2009/11.
Date of creation: 2009
Date of revision:
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Information sale; Cheap talk; Conflicts of interest; Information Acquisition; Firewalls; Market efficiency;
Other versions of this item:
- Antonio Cabrales & Piero Gottardi, 2008. "Markets for Information: Of Inefficient Firewalls and Efficient Monopolies," Working Papers 2008_37, Department of Economics, University of Venice "Ca' Foscari".
- Antonio Cabrales & Piero Gottardi, 2008. "Markets for Information: Of Inefficient Firewalls and Efficient Monopolies," CESifo Working Paper Series 2336, CESifo Group Munich.
- Antonio Cabrales & Piero Gottardi, 2008. "Markets for information : of inefficient firewalls and efficient monopolies," Economics Working Papers we080201, Universidad Carlos III, Departamento de Economía.
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-28 (All new papers)
- NEP-COM-2009-02-28 (Industrial Competition)
- NEP-CTA-2009-02-28 (Contract Theory & Applications)
- NEP-MIC-2009-02-28 (Microeconomics)
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