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Selling information to competitive firms
Author(s) -
Kastl Jakub,
Pagnozzi Marco,
Piccolo Salvatore
Publication year - 2018
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12226
Subject(s) - agency (philosophy) , business , private information retrieval , monopolistic competition , certification , information asymmetry , intermediary , perfect information , audit , production (economics) , industrial organization , microeconomics , welfare , agency cost , economics , marketing , monopoly , finance , accounting , philosophy , statistics , mathematics , management , epistemology , market economy , corporate governance , shareholder
Internal agency conflicts distort firms' choices and reduce social welfare. To limit these distortions, principals dealing with privately informed agents often acquire information from specialized intermediaries, such as auditing and certification companies, that are able to ascertain, and credibly disclose, agents' private information. We study how the structures of both the information provision and the final good markets affect information accuracy. A monopolistic information provider may supply imprecise information to perfectly competitive firms, even if the precision of this information can be increased at no cost. This is due to a price effect of information: although more accurate information reduces agency costs and allows firms to increase production, it also results in a lower price in the final good market, which reduces principals' willingness to pay for information.