Endogenous Acquisition of Multi-Dimensional Information in a Strategic Trading Model

Abstract

We analyze a strategic trading model with endogenous acquisition of multi-dimensional costly private information. We find that integer constraints on the number of informed traders, coupled with the interactions among different types of informed traders, lead to multiplicity and nonexistence of equilibria in the information market. Multiplicity stems either from information substitutability or from information complementarity, and nonexistence stems from the combined effect of information substitutability and information complementarity. Integer constraints also lead to asymmetric equilibria even when the model setup is symmetric. Under integer constraints, the fixed point theorem is no longer applicable and new methodologies are developed to prove the existence of equilibria as well as to find specific solutions for equilibria.

Keywords: Strategic Trading, Endogenous Information Acquisition, Multi-Dimensional Information, Multiplicity and Nonexistence of Equilibria, Symmetry Breaking Equilibrium

JEL Classification: G10, G12, G14