Disclosure as a Matching Mechanism : Theory and Evidence from a Field Experiment

Trading outcomes generally depend on the quality of information available to market participants. Using a large scale field experiment that randomly manipulates the availability of quality-information in a wholesale automobile market, we measure the effect of information disclosure on market outcomes. As the theoretical literature predicts, more information increases expected revenues. However, the biggest gains in revenue are for the best and worst quality grades, which is at odds with conventional information disclosure theories. We argue that information disclosure causes better matching of heterogeneous buyers to different quality cars, an effect that has been ignored so far. This not only rationalizes the empirical results, but further implications of information as a matching mechanism are also verified in the data. JEL classifications C93, D44, D82, L15 ∗We are grateful to the management and employees of the firm that provided the data and worked cooperatively with us to implement the experiment. We thank Igal Hendel for helpful discussions, and many seminar participants for comments. Tadelis thanks the National Science Foundation for financial support.