The Value of Information in Competitive Markets: Evidence from Small and Medium Enterprises

Abstract

In this paper, we empirically investigate how the performance and decision-making of small and medium-sized enterprises (SMEs) change when gaining access to strategically valuable market information. To do so, we evaluate the impact of an unprecedented information service diffused at zero cost by a large European bank among its SME customers. Adopting firms had monthly access to reports the bank provided with rich information about their own firm’s clientele portfolio and all their competitors. Using a first-differences estimator, we find adoption is associated with a 4.5% increase in establishment revenue, whereas instrumental variable estimation results show that adoption causally increases revenue by 9%. The main mechanism driving our result is that the new information prompted adopting establishments to target existing, yet unexploited, business opportunities. More specifically, we find adopting establishments increase their sales to underrepresented gender-age customer groups in their customer portfolio prior to adoption. Our evidence also suggests that adopting establishments shift sales from weekly peak to off-peak times. Because adopting SMEs obtain substantial returns from access to information at zero monetary cost, our evidence suggests managerial inattention and cognitive costs must be two main factors deterring small firms from acquiring and analyzing market information.

Keywords: information, competitive markets, data sharing, small and medium enterprises

JEL Classification: G20, L20, L80, M15, O32, O33