بازارهایی برای اطلاعات: از دیواره آتش ناکارآمد تا انحصارات کارآمد

In this paper we study market environments where information is costly to acquire and is also useful to potential competitors. Agents may sell, or buy, reports over the information acquired and choose their trades in the market on the basis of what they learnt. Reports are unverifiable – cheap talk messages – hence the quality of the information transmitted depends on the conflicts of interest faced by the senders. We find that, when information has a prevalent horizontal differentiation component, in equilibrium information is acquired when its costs are not too high and in that case it is also sold, though reports are typically noisy. The market for information is in most cases a monopoly, and there is underinvestment in information acquisition. We also show that regulatory interventions, in the form of firewalls, only make the inefficiency worse. Efficiency can be attained with a monopolist selling differentiated information, provided entry is blocked.

It is common to observe potential competitors in a market exchanging information about issues pertaining to that market. To take an example from the labor market, human resource managers often discuss the characteristics of potential employees in their sector. Analogous situations arise in the housing market, or in financial markets. This is somewhat surprising since the information supplied often has a rival nature. The firm manager mentioned above may prefer to be the only one to know that a particular job applicant is adequate for her needs, as this reduces the competition if she intends to hire her. As a consequence, managers may not be trusted to make truthful reports over the information they acquired.1 At the same time, in many situations information may be quite costly to acquire. Just think of the costs of finding a suitable candidate in an academic job search. These costs, together with the common interest nature of the information, generate a clear incentive for setting up a market for information, so that the agents who acquired information can provide reports over it, possibly in exchange for the payment of a price, to other agents. The soft nature of the information transmitted as well as the rivalry we posit in its use create a challenge for nontrivial information transmission. As we will see, this transmission is more likely to happen if different individuals have different values for the same bit of information, or if some specific skills or features are needed to profit from a given news. In the language of industrial organization, we will see that information about a horizontal dimension, instead of a vertical one, is particularly amenable to profitable exchanges. Furthermore, the conflicts of interest faced by the information transmitter mentioned above are clearly mitigated when he is not interested in trading in the market. In the wake of financial scandals after the dot-com bust and the concerns by regulators about the objectivity and the conflicts of interests of financial analysts, one typical recommendation of regulators in various countries was the introduction of “firewalls”, separating who provides information on a market from who trades on it.2 Finally, the possibility of exchanging, or selling information to other traders may in turn affect the agentsʼ incentive to acquire information. We consider a model which, although admittedly stylized in some dimensions, allows us to capture what we believe are some key factors at play in the issues described above: information acquisition, its transmission via non-verifiable reports and underlying market outcome. One of our main objectives is to analyze the efficiency problems that arise in environments where these features are present and the scope for regulatory interventions. To this end we will also address the following issues: when is information acquired? If so, does a market for information form and how competitive is it? How noisy is the information transmitted? In particular, we investigate a market where a single, indivisible unit of an object is up for sale. It is useful to describe various features of our set-up by making reference to the example with which we started the paper, though the analysis clearly applies to many other situations: we could think so of this “object” as a worker (to be even more precise, letʼs say a movie actor). The market is organized as a (second price) auction, where several potential employers can participate. The worker comes in different possible varieties (attractiveness to different audience markets), and each employer only values one variety. In addition to employers, who are the potential buyers in the market, there is the agent (the actor himself or an agent), who initially owns the object and has no utility for it (he cannot produce a movie on his own), and some other agents who are not interested in trading the object. The true variety is not known ex-ante by anybody, but can be ascertained, incurring a given cost, by any market participant. This is because the attractiveness of any particular actor to different audience markets is extremely hard to anticipate and requires costly market research activities.3 Besides the market for the worker there is another market where information is exchanged: any agent who acquired information can set a price (which may be zero) at which he sells a report about his information to other potential buyers. The information transmitted, as we said, is non-verifiable, thus reports are pure “cheap talk” messages. The softness of the information, for example, would make it hard to prosecute successfully an advisory company who advertised an actor for his attractiveness to young viewers when in fact he is not. As can be seen from the brief description above, the model displays a number of important simplifications. We show however in one of the final sections on robustness checks that the main conclusions, in particular those regarding welfare and information transmission, survive several natural extensions (concerning, e.g., the specification of the buyersʼ possible valuations, the timing of the different actions, the nature of the information provider and so on). We characterize an important class of equilibria of such game, where the sellers of information tell the truth whenever they cannot strictly gain by lying. More precisely, they report the true type of the object when they are not interested in it, and send an uninformative report when they do. A first finding is that in equilibrium, when information costs are not too high, information is acquired and in that case it is also sold by its acquirer to third parties potentially interested in the object. That is, the market for information is active. Typically, only one trader acquires information in equilibrium, the market for information is then a monopoly. Information is either sold at a positive but sufficiently low price such that all the uninformed buyers except one purchase it. We also show that both when information is acquired by a buyer, who faces a conflict of interest in his reporting, or by an agent not interested in trading, who faces no conflict, the object ends up in the hands of the agent who values it the most.4 That is, the allocation is ex-post efficient. However the level of investment in information acquisition is not efficient. In particular there is typically underinvestment, independently of the identity of the agent who acquires and sells information, i.e. when he is a potential buyer (Proposition 1), but also when he is an agent not interested in trading the object (Proposition 2). Actually, in the second case the inefficiency is even more severe. Hence restricting the possibility of selling information in the market only to agents not interested in trading upon it (as with the introduction of “firewalls”), while improving the truthfulness of the information transmitted, can worsen the overall market outcome. The reason is that when the seller of information is also interested in trading the object, he gets an additional benefit from the information, due to the possibility of trading directly on it. Hence, the investment in information is higher.5 In contrast, an efficient outcome can be attained if the informed agent can sell different types of reports, of different quality (or equivalently if we permit the resale of information). We show (Proposition 3) that in this way the information provider, when he is a potential buyer or a disinterested trader, can appropriate all the increase in social surplus generated by his information acquisition and dissemination. At the same time, in this case entry in the market for information is often profitable. Thus some regulatory intervention may still be needed to get efficiency, protecting monopoly situations in the market for information with barriers to entry, though regulators usually frown upon such practices. The paper is organized as follows. The environment is described in Section 2 while a characterization of the equilibria and their welfare properties when information providers are potential buyers is given in Section 3. The following section investigates how the properties of equilibria, in particular their efficiency, vary with other types of providers of information, establishing the adverse effect on welfare of firewalls. Section 5 presents a way in which the inefficiency problem can be solved. The robustness of our results is then discussed in Section 6. Proofs are collected in Appendix A at the end of the paper, while some supplementary material is in Appendix B, available online.6 Literature. This paper is related to different strands in the literature. More obviously, it is related to the seminal work of Crawford and Sobel (1982) on strategic information transmission. The primary focus of such work and the ensuing literature is the message game and the relationship between information transmission and alignment of the preferences of sender and receiver (or the ‘conflict of interest’ among them). To that literature, we add a richer game structure. The amount of information available and who ‘owns’ it are endogenously determined, as a result of the information acquisition decisions of every agent. We also allow messages to be transmitted for the payment of a price, thus formalizing a market for information. And we examine the consequences of the acquisition and transmission of information for the properties of the equilibria in the underlying market for the object. Finally, with regard to the message (sub)game, in our set-up the degree of coincidence of the objectives of sender and receivers is not common knowledge, as it depends on the realization of the true variety of the object and of the preferred variety of the seller of information, which is only privately known to him. While a rather large empirical literature studies the behavior of providers of information in financial markets, there is much less theoretical work on markets for information. On the empirical side, see for instance the survey by Mehran and Stulz (2007), who document that in spite of conflicts of interest7 financial information is indeed exchanged. They also show that market participants correctly anticipate the presence of biases.8 On the theoretical side, a good part of the attention has received the case where the quality of the information transmitted is perfectly verifiable, thus abstracting from the problem posed by the possibility of untruthful reports. Admati and Pfleiderer, 1986 and Admati and Pfleiderer, 1990 look at a situation where market participants act as price takers, where the “paradox” arises that when information is too precise, asset prices are perfectly revealing, so that information is worthless. Therefore, providers need to add some noise in order to profit from information sales. When traders are strategic, information transmission may also provide a strategic advantage, as pointed out by Vives (1990) in a general oligopoly framework, Fishman and Hagerty (1995) in the case of financial markets, Bergemann and Pesendorfer (2007) and Eso and Szentes (2007) in the case of auctions. In this last case information acquisition has then been investigated by Persico (2000) and Bergemann and Valimaki (2002). The case where the information transmitted is non-verifiable, as in our set-up, has been considered by Morgan and Stocken (2003), who study the information transmitted by an analyst when his incentives may not be aligned with those of investors, as he may be either a type that enjoys higher utility when the price of the underlying asset is high, or a type that enjoys telling the truth. Unlike in our set-up, such preferences are taken as primitives, there is no choice concerning the acquisition of information acquisition nor the price at which it is sold and the equilibrium in the market for the underlying asset is not considered. They find that the analyst always “hypes” the stock; see also Kartik et al. (2007). This is in line with our results for the case in which the information provider is the owner of the object. Bolton et al. (2007) study how a cost for lying and competition can mitigate the tendency of financial intermediaries to sell to their customers products that are not appropriate for their tastes. They share with our work the feature that the information transmitted has a horizontal dimension, but they focus on the incentives for truth-telling by sellers who may sometimes carry all existing varieties and some other times only one. Our analysis, being cast in a static framework, abstracts from reputational concerns. These may arise in a dynamic framework, where providers of information and traders repeatedly interact, and may mitigate the tendency of providers to send untruthful reports which may damage their future reputation, as shown by Benabou and Laroque (1992) and Ottaviani and Sorensen (2006). Allen (1990) focuses on a different problem affecting information transmission in markets, arising when traders do not know whether advisers are actually informed or not. He considers the case where advisers have no reason to lie if informed,9 thus the only reason not to fully trust their reports is their possible lack of information. It is shown that advisers can give credibility to their claim they are informed by investing in riskier portfolios when they are really informed. Allenʼs approach is complementary to ours. Unlike his, our advisers are known to be informed, but (again unlike his) they might be biased in their reports because they compete with advisees when they choose their trades on the basis of their information

The availability of good quality information about the characteristics of the goods traded is key to a properly functioning market. This has long been understood by academics as well as by practitioners and regulators. But market participants are not always endowed with all necessary information, and typically seek to obtain it, in several cases from other actors in the market. For this reason, authorities have established numerous rules on the amount and kinds of communication between market participants and information providers. Surprisingly, there is little research into the interplay between acquisition of information, its communication and the subsequent trades in the market, which would be necessary to provide foundations for such policy. We partly fill this gap by building a formal model of a market environment with costly acquisition and unverifiable transmission of information. In this set-up we are able to investigate the conflicts of interest faced by the information providers, see how they vary according to the type of the provider, in which directions they limit the extent of truthful transmission of information and examine the consequences for the performance of the market. By considering an environment where information concerns a prevalent horizontal differentiation component, we find that there are typically inefficiencies because of underinvestment in information acquisition. Usually advocated regulatory interventions, such as firewalls, or limiting the sale of information to parties which have no interest in trading the underlying object, worsen these inefficiencies. In contrast, efficiency can be attained if the seller can sell information of different quality, at different prices, provided additional entry in the market for the sale of information is blocked by suitable regulations. When, on the other hand, the vertical differentiation element is more relevant, firewalls can be beneficial. As we argued in the introduction, both the horizontal and the vertical elements are likely to be part of the information problem in real markets. We thus provide a tool to assess the potential benefits of establishing various kinds of regulations.