Information Sellers in Financial Markets ∗

Abstract

This paper analyzes the market for financial information and the incentive of institutions, such as Reuters, to provide information to traders in decentralized financial markets. We derive the following results. (i) The optimal selling strategy consists of selling identical information (Reuters’ screen) to all traders. (ii) The traders buy information from the same providers. If the traders may either buy information from the incumbents or an entrant and the incumbents charge not too high a price, then the entrant has no demand even though he sells for free information of the same quality. (iii) The social benefit of an information provision industry is non-monotonic in the acquisition cost. Depending on this cost, economy of scale may have both a positive and negative effect