Welfare Implications of Endogenous Information Acquisition and Monopoly Power
I study the effect of endogenous information acquisition by a monopolistic firm on consumer welfare. Information affects welfare through two opposing channels: more information leads to more efficient use of labor, but also more consumer surplus extracted. I show that information in a decentralized economy is over-acquired relative to welfare-optimal and social planner benchmarks.
The welfare-optimal benchmark assumes that a policymaker directly chooses information acquired by the monopolist to maximize welfare. I also study the welfare implications of the monopolistic information market. Higher price for information can be beneficial for welfare if the disutility from extracted consumer surplus dominates losses from less efficient use of labor.