Selling Information in Competitive Environments

Abstract

We consider a setting where data buyers compete in a game of incomplete information, about which a data seller owns some payoff relevant information. We formulate the problem facing the seller as a joint information and mechanism design problem: deciding which information to sell, while at the same time eliciting the private value types of the buyers and collecting payments. We derive the welfare- and revenue-optimal mechanisms for a class of binary games. Our results reveal some important features of selling information in competitive environments: (i) the negative externalities arising from competition among buyers increase the profitability of selling exclusive information to one of the buyers; (ii) in order for the buyers to follow the seller’s action recommendations, the extent of exclusive sales must be limited; (iii) these same equilibrium constraints also limit the distortions in the allocation of information distortion that can be introduced by a monopolist data seller; (iv) the fiercer the competition across buyers the stronger the previous two limitations, and the weaker the impact of market power on the equilibrium allocation of information.