Information Sales and Strategic Trading

Diego Garcia and Francesco Sangiorgi

No 45, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: We study information sales in financial markets with strategic risk-averse traders. Our main result establishes that the optimal selling mechanism is one of the following two: (i) sell to as many agents as possible very imprecise information; (ii) sell to a single agent a signal as precise as possible. As noise trading per unit of risk-tolerance becomes large, the newsletters or rumors associated with (i) dominate the exclusivity contract in (ii). The optimal information sales contracts share similar properties in market-orders and limit-orders markets, while models in which competitive behavior is assumed yield qualitatively different equilibria. The endogeneity of the information allocation implies a ranking reversal of the informational efficiency of prices across markets and models. Equilibrium prices become more informative in market-orders than in limit-orders markets, and the model with imperfect competition yields more informative prices than its competitive counterpart. These results are driven by the seller of information offering more precise signals when the externality in the valuation of information is relatively less intense.

Keywords: markets for information; imperfect competition; share auctions. (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2007
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (5)

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Journal Article: Information Sales and Strategic Trading (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:45

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