Monopoly and Competition in the Markets for Information

Abstract

This paper considers the generation and provision of data products in the markets for information. Buyers face a decision problem with uncertainty of two states. They can purchase experiments to augment their private information. A buyer’s willingness to pay for an experiment depends on his private information. To generate these experiments, sellers have to make an investment, which determines the most informative experiment a seller can provide. Sellers then post menus of experiments and prices. We characterize the optimal menu given any investment level and derive the optimal investment. When two sellers compete with investment, we find an equilibrium in which two sellers split the market. One seller only serves to high belief buyers and the other serves to low beliefs buyers. Each seller specializes in generating a more informative signal about one state. Monopoly seller always provides more informative experiments, and to more buyers, than the case of duopoly competition.

Keywords: Selling Information, Duopoly Competition, Statistical Experiments, Screening, Statistical Errors

JEL Classification: D42, D81, D82, D83