Competing Through Information Provision

Jean Guillaume Forand

No 661, 2007 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the competition between sellers who choose how much information to provide to potential buyers. We analyse the symmetric equilibria in information provision of a game in which two sellers with unit supplies compete to attract two buyers with unit demands. Sellers compete ex ante; they commit to a level of information provision and to a sale mechanism (e.g. a second-price auction). More informed buyers have better differentiated private valuations and trade yields them higher informational rents. Our focus is on this critical trade-off faced by sellers: promising information attracts buyers (traffic effect) but lowers profits-per-buyer (rents effect). When the sale mechanisms are common and exogenously fixed, we find that sellers' equilibrium profits can be higher under mechanisms that yield more rents to buyers. High-rent mechanisms inhibit market-stealing and soften the competition between sellers, which lowers equilibrium levels of information provision. High rent levels may also intensify the competition for goods between the buyers, which compresses the traffic-rents trade-off and further dampens the competition between sellers. When sellers promise both information and sale mechanisms, we show that they can capture the efficiency gains of increased information so that all symmetric equilibria have full information provision.

Date: 2007
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Journal Article: Competing through information provision (2013)
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