Information Acquisition in Fragmented Markets

Abstract

This paper analyzes how market fragmentation affects traders’ information choices and market outcomes. We built a model of a decentralized market with costly information acquisition based on a double-auction model. We show that the information acquisition is lower than the efficient level due to the externality of price informativeness and market power. We find that market fragmentation leads to lower information acquisition. However, fragmentation can be welfare-improving if traders’ value correlations are sufficiently heterogeneous.