Information Sharing When Firms Compete for Common-Value Customers

Extant research suggests that the sharing of individual-level customer information benefits competing firms by allowing them to better discriminate their customers and soften the price competition. This paper shows that the information sharing may benefit competing firms even without price discrimination. Based on a common-value auction framework, the paper studies the case where two firms compete head-to-head for common-value customers who have no brand preference. Firms differ in their information about the customers’ preferences on the product/service. Our model illustrates that the better informed firm would like to sell its customer data to the competitor when the data reveals more valuable customers and when the information asymmetry between firms is large. The model also examines the optimal degree of information sharing between firms. The insights from this study complement the extant literature in illustrating how information sharing allows firms to better profit from different types of customers.