Informational Intermediation and Competing Auctions

We examine the effects of provision of information about seller qualities by a third-party in a directed search model with heterogeneous sellers, asymmetric information, and where prices are determined ex post. The third party separates sellers into quality-differentiated groups and provides this information to some or all buyers. We show that this always raises total welfare, even if it causes the informed buyers not to trade with low quality sellers. However, buyers and some sellers may be made worse off in equilibrium. We also examine the provision of information by a profit maximizing monopoly, and show that it may have an incentive to overinvest in the creation of information relative to the social optimum.