Competition in Selling Information

Abstract

We study a setting where two experts have private information about the value of an investment, and report their information coarsely to a set of investors through recommendations. The investors have different priors and therefore different information preferences, leading to horizontal competition between experts who must choose to whom they cater their recommendations. When investors cannot crosscheck by acquiring both recommendations, both experts provide the recommendation that is optimal for the median investor. However, when crosschecking is allowed, experts may differentiate and the degree of differentiation is increasing in the dispersion of investor types. Differentiation is detrimental to investor welfare, and a single monopoly expert may provide higher investor welfare than a competitive duopoly.

Keywords: information markets; experts; crosschecking; horizontal competition

JEL Classification: D82, D83, G24