Overcoming Impediments to Information Sharing

Full Title of Reference

Overcoming Impediments to Information Sharing

Full Citation

Amitai Aviram and Avishalom Tor, Overcoming Impediments to Information Sharing, 55 Ala. L. Rev. (2004). SSRN

BibTeX

Categorization

Issues: Information Sharing/Disclosure Approaches: Regulation/Liability

Key Words

Interdependencies,

Synopsis

When deciding whether to share information, firms consider their private welfare. Discrepancies between social and private welfare may lead firms excessively to share information to anti-competitive ends - in facilitating of cartels and other harmful horizontal practices - a problem both antitrust scholarship and case law have paid much attention to. On the other hand, legal scholars have paid far less attention to the opposite type of inefficiency in information sharing among competitors - namely, the problem of sub-optimal information sharing. This phenomenon can generate significant social costs and is of special importance in network industries because the maintenance of compatibility, a key to producing positive network effects, typically requires information sharing. Understanding the hitherto neglected impact of sub-optimal information sharing is important not only for many areas of antitrust law, but also for developing effective policies towards network industries and critical infrastructures more generally, as well as for improving those procedural rules that concern information exchange among litigating parties.

This paper therefore advances the legal analysis of impediments to efficient information sharing in a number of significant ways: First, it shows that the strategic behavior of competitors may erect an economic barrier to information sharing that has not been previously addressed in the literature - the fear of degradation. This form of strategic behavior involves the strategic refusal to share information when the refusal inflicts a greater harm on one's rivals than on oneself, and thus generates a competitive advantage. Second, the paper reveals a hitherto unrecognized set of behavioral impediments to information sharing, wherein rivalry norms and managers' risk attitudes bias competitors' judgments of the prospects of information sharing and the status-quo bias and ambiguity aversion lead these decision makers to avoid such arrangements. Third, it integrates these economic and behavioral insights with the findings of the extant literature to create a new framework for predicting when private information sharing will be suboptimal. Finally, we suggest how the alignment of private information sharing with social optimality may be promoted, based on the framework developed here.

Additional Notes and Highlights

Outline:

 I. Introduction
 II. The Assessment of Information Sharing in the Extant Literature
 III. The Problem of Degradation
    1. The Rivalrous Characteristic of Information
    2. Degradation (With an Emphasis on Network Environments)
 IV. Determining the Prospects of Information Sharing: Judgment under Uncertainty
    1. Uncertainty and the Attractiveness of Information Sharing
    2. Norms of Rivalry: Recognizing the Value of Limited Cooperation
    3. Managerial Risk Perceptions and the Illusion of Control
 V. The Difficulty of Embarking on an Information Sharing Arrangement: Boundedly Rational Decision Making
    1. The Biasing Power of the Status Quo: Loss Aversion and Omission Bias 35
    2. Comparative Aversion to Ambiguity
 VI. The Manifestation of Impediments to Information Sharing in Different Market Settings
    1. Economic Impediments
    2. Behavioral Impediments
 VII. Overcoming Impediments to Information Sharing
    1. Overcoming Economic Impediments
    2. Overcoming Behavioral Impediments
 VIII. Conclusion