Economics Webinar - Third-Party Information Provision in Market Transaction

This paper analyzes a bilateral trade model where the buyer’s valuation for the object is uncertain and not known by the buyer. An information broker can sell any signal to the buyer. After the seller observes the broker’s offer, she sets a price for the object. Then, the buyer decides whether to accept the offer and whether to trade. Our main result is that any equilibrium is outcome-equivalent to one in which the broker releases a binary signal. The buyer breaks even and the seller is indifferent between setting the equilibrium price and a price at which the buyer is indifferent between trading without information and accepting the broker’s offer.