Markets for information: Of inefficient firewalls and efficient monopolies

Antonio Cabrales and Piero Gottardi

Games and Economic Behavior, 2014, vol. 83, issue C, 24-44

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.

Keywords: Information sale; Cheap talk; Conflicts of interest; Information acquisition; Firewalls; Market efficiency (search for similar items in EconPapers)
JEL-codes: C72 D83 G14 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Markets for Information: Of Inefficient Firewalls and Efficient Monopolies (2009)
Working Paper: Markets for Information: Of Inefficient Firewalls and Efficient Monopolies (2008)
Working Paper: Markets for information: of inefficient firewalls and efficient monopolies (2008)
Working Paper: Markets for Information: Of Inefficient Firewalls and Efficient Monopolies (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:83:y:2014:i:c:p:24-44

DOI: 10.1016/j.geb.2013.10.008

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