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Costly Information Intermediation as a Natural Monopoly

Daniel Monte () and Roberto Pinheiro ()

No 1721, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

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.

Keywords: monopoly; Information; pricing (search for similar items in EconPapers)
JEL-codes: D83 D47 D85 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2017-11-16, Revised 2017-11-16
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
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DOI: 10.26509/frbc-wp-201721

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