The value of public information in vertically differentiated markets

Generating public information about vertically differentiated prod- ucts increases expected vertical differentiation and softens competi- tion. We show that this will induce firms to overinvest (underinvest) in information generation, if the deadweight loss in the subsequent market equilibrium is high (low). Moreover, information generation by one firm has a positive externality on the other firm. It follows that coordination (e.g. via industry associations) increases informa- tion generation. When product qualities are endogenous, information generation may prevent quality degradation and thus have an addi- tional social benefit