Portfolio Competition: Why Conventional Antitrust Fails in Oligopolistic Information Markets
Achim & Strausz: "Oligopolistic Information Markets" CRC Discussion Paper No. 554
The modern economy increasingly relies on information as a tradable commodity, with buyers routinely combining signals, such as investors aggregating financial forecasts or e-commerce firms compiling fraud scores, from multiple sources. Peter Achim (York University) and Roland Strausz (HU-Berlin, Project B02) develop a theoretical framework, termed portfolio competition, to analyse oligopolistic pricing in these markets, explicitly capturing this defining feature: the combinability of signals. Their analysis reveals that the economics of these markets overturns standard oligopoly intuition, where competition typically protects buyers.
A core result establishes that competitive pressure does not reliably prevent full rent extraction. Unlike traditional markets where prices fall toward marginal cost as the number of sellers increases, this logic fails when signals are complements. When information sources reinforce each other, sellers can collectively leverage the buyer’s strong desire for the combined, high-value portfolio to extract the full social surplus, leaving the buyer with nothing, irrespective of the number of competitors. The precise conditions for this outcome are characterised by weak and strong balancedness. Specifically, strong balancedness (which the authors show is equivalent to supermodularity, indicating gross complementarity at all levels) ensures that full extraction occurs in every equilibrium.
Achim and Strausz also fundamentally challenge the canonical view of market entry dynamics. Standard models of competition often predict socially excessive entry driven by business-stealing externalities. However, the authors prove that excessive entry never occurs in information markets because the buyer’s efficient portfolio choices ensure every active seller contributes unique value, thus eliminating business-stealing effects in equilibrium.
Paradoxically, entry can lead to an anti-competitive effect. When a new seller provides strong complementarities, they can dramatically increase the overall value of the grand portfolio. This shift in the value structure can strengthen the sellers’ collective bargaining position by rendering the buyer’s threat to exclude individual firms non-credible. Consequently, the entry of a new firm can shift the market equilibrium from one where the buyer retains surplus to one where all sellers extract higher rents.
These findings suggest that traditional antitrust heuristics, which often rely on concentration indices, are ill-suited for the data economy. Welfare is determined not primarily by the number of competitors, but by the structure of information complementarity. The regulatory focus should shift toward addressing coordination failures that lead to insufficient entry and prohibiting practices, such as exclusivity clauses, that undermine the formation of efficient information portfolios.
Link (pdf): Oligopolistic Information Markets
