Selling Information to a Competitor

Abstract

Selling information to a competitor can generate revenue but may also help the rival choose better actions in the market they compete in. We study this trade-off when the buyer's demand for supplemental information depends on its own private information. The buyer selects from a menu of information products offered by the seller, who incurs a competitive loss proportional to the increase in the buyer's probability of choosing the correct downstream action. In a common-prior model with binary states and actions, we characterize profit-maximizing menus for two buyer types and for a continuum of types. We show that selling information can remain profitable despite the competitive loss, but withholding is optimal when this loss exceeds the buyer's valuation of the information. Stronger competition weakly reduces the profitability of selling information and the buyer's overall probability of choosing correctly downstream, though it need not make individual information products less informative.

arXiv comment40 pages, 5 figures