Selling Information to Competitive Firms

35 Pages Posted: 3 Nov 2015

See all articles by Jakub Kastl

Jakub Kastl

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Marco Pagnozzi

Università di Napoli Federico II; CSEF

Salvatore Piccolo

University of Bergamo, Compass Lexecon and CSEF

Date Written: November 2, 2015

Abstract

A monopolistic information provider sells an informative experiment to a large number of perfectly competitive firms. Within each firm, a principal contracts with an exclusive agent who is privately informed about his production cost. Principals decide whether to acquire the experiment, that is informative about the agent's production cost. While more accurate information reduces agency costs and allows firms to increase production, it also results in a lower market price, which reduces principals willingness to pay for information. We show that, even if information is costless for the provider, the optimal experiment is not fully informative when demand is price-inelastic and agents are likely to be inefficient. This result hinges on the assumption that firms are competitive and exacerbates when principals can coordinate vis-à-vis the information provider. In an imperfectly competitive information market, providers may restrict information by not selling the experiment to some of the principals.

Keywords: Adverse Selection, Information Acquisition, Experiments, Competitive Markets

JEL Classification: D40, D82, D83, L11

Suggested Citation

Kastl, Jakub and Pagnozzi, Marco and Piccolo, Salvatore, Selling Information to Competitive Firms (November 2, 2015). Available at SSRN: https://ssrn.com/abstract=2685265 or http://dx.doi.org/10.2139/ssrn.2685265

Jakub Kastl (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Marco Pagnozzi

Università di Napoli Federico II ( email )

Department of Economics
Via Cinthia (Monte S. Angelo)
Napoli, 80126
Italy
+39 081 675099 (Phone)
+39 081 7663540 (Fax)

HOME PAGE: http://www.csef.it/people/pagnozzi.htm

CSEF

Italy

Salvatore Piccolo

University of Bergamo, Compass Lexecon and CSEF ( email )

via de caniana 2
24127
Bergamo, BG 24127
Italy

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