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Costly Information Intermediation as a Natural Monopoly

Author

Listed:
  • Daniel Monte
  • Roberto Pinheiro
Abstract
In this paper, we show that information trade has similar characteristics to a natural monopoly, where competition may be detrimental to efficiency due either to the duplication of direct costs or the slowing down of information dissemination. We present a model with two large populations in which consumers are randomly matched to providers on a period-by-period basis. Despite a moral hazard problem, cooperation can be sustained through an institution that gives incentives to information exchange. We consider different information pricing mechanisms (membership vs. buy and sell) and different competitive environments. In equilibrium, both pricing and competitive schemes affect the direct and indirect costs of information transmission, represented by directed fees paid by consumers and the expected loss due to imperfect information, respectively.

Suggested Citation

  • Daniel Monte & Roberto Pinheiro, 2017. "Costly Information Intermediation as a Natural Monopoly," Working Papers (Old Series) 1721, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1721
    DOI: 10.26509/frbc-wp-201721
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    More about this item

    Keywords

    Information; pricing; monopoly;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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