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Strategic Noise in Competitive Markets for the Sale of Information.

Germain, Laurent Strategic Noise in Competitive Markets for the Sale of Information. (2005) Journal of Financial Intermediation, 14 (2). 179-209. ISSN 1042-9573

(Document in English)

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Official URL: http://dx.doi.org/10.1016/j.jfi.2005.03.001


This paper shows how informed financial intermediaries can reduce their trading competition by designing optimal incentive compatible contracts for the sale of information. With fund management contracts – indirect sale of information – banks can credibly commit to collaborate and add noise into prices. This is a way to circumvent the Grossman and Stiglitz (1980) paradox: when information is costly, by commiting to add noise, the banks can recover the cost of collecting information and enter the market. By contrast, when information is costless, even with a large number of sellers of information entering the market prices are not fully informative.

Item Type:Article
Additional Information:Thanks to Elsevier editor. The definitive version is available at http://www.sciencedirect.com The original PDF of the article can be found at: http://www.sciencedirect.com/science/article/pii/S1042957305000082
Audience (journal):International peer-reviewed journal
Uncontrolled Keywords:
Institution:Université de Toulouse > Institut Supérieur de l'Aéronautique et de l'Espace - ISAE-SUPAERO (FRANCE)
Université de Toulouse > Toulouse Business School - TBS (FRANCE)
Laboratory name:
Deposited On:11 Jul 2012 13:39

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