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Costly Information Intermediation as a Natural Monopoly

Author

Listed:
  • Pinheiro, Roberto

    (Federal Reserve Bank of Cleveland)

  • Monte, Daniel

    (São Paulo School of Economics, FGV)

Abstract

In this paper, we show that information trade has similar characteristics to a natural monopoly, where competition may be detrimental to efficiency due either to the duplication of direct costs or the slowing down of information dissemination. We present a model with two large populations in which consumers are randomly matched to providers on a period-by-period basis. Despite a moral hazard problem, cooperation can be sustained through an institution that gives incentives to information exchange. We consider different information pricing mechanisms (membership vs. buy and sell) and different competitive environments. In equilibrium, both pricing and competitive schemes affect the direct and indirect costs of information transmission, represented by directed fees paid by consumers and the expected loss due to imperfect information, respectively.

Suggested Citation

  • Pinheiro, Roberto & Monte, Daniel, 2017. "Costly Information Intermediation as a Natural Monopoly," Working Papers (Old Series) 1721, Federal Reserve Bank of Cleveland, revised 07 Dec 2018.
  • Handle: RePEc:fip:fedcwp:1721
    DOI: 10.26509/frbc-wp-201721
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    References listed on IDEAS

    as
    1. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
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    4. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
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    12. S. Nageeb Ali & David A. Miller, 2016. "Ostracism and Forgiveness," American Economic Review, American Economic Association, vol. 106(8), pages 2329-2348, August.
    13. Joyee Deb, 2008. "Cooperation and Community Responsibility: A Folk Theorem for Repeated Matching Games with Names," Working Papers 08-24, New York University, Leonard N. Stern School of Business, Department of Economics.
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    More about this item

    Keywords

    Information; pricing; monopoly;

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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