Information Sale and Competition

This paper studies the strategic interaction between a monopolistic seller of an information product and a set of potential buyers that compete in a downstream market. Our analysis illustrates that the nature and intensity of competition among the information provider’s customers play first-order roles in determining her optimal strategy. We show that when the customers view their actions as strategic complements (such as in Bertrand competition), the provider finds it optimal to offer the most accurate information at her disposal to all potential customers. In contrast, when buyers view their actions as strategic substitutes (for example, when they compete with one another in Cournot), the provider maximizes her profits by either (i) restricting the overall supply of the information product, or (ii) distorting its content by offering a product of inferior quality. We also establish that the provider’s incentive to restrict the supply or quality of information provided to the downstream market intensifies in the presence of information leakage.