Who gains and who loses from more information in technology markets? Evidence from the Sunshine Act

Research Summary: We consider the context of a technology market where participants (in particular, sellers) differ in reputation, and sellers observed participating in the transactions might suffer a reputation loss. Our theoretical model predicts that low-reputation idea sellers, thanks to the improvement in information disclosure, are more likely to be involved in technology transactions; at the same time, high-reputation idea sellers, to protect their reputations, might prefer avoiding any transactions. This shift in seller composition might affect the quantity and quality of collaborations. To test our theory, we assess the effect of the Physician Payment Sunshine Act on physician-firm collaborations. Overall, our findings indicate that while information disclosure might benefit some market participants, it can have unintended negative consequences for others. Managerial Summary: In technology markets, more information about market participants generally leads to better outcomes. However, in contexts where sellers suffer a reputation loss if their transactions become known, higher-reputation sellers may leave the market, affecting the quality of ideas being traded and impacting buyers. On the other hand, lower-reputation sellers may benefit from increased visibility and share their ideas more frequently. Our research examined these effects in the context of the Physician Payment Sunshine Act, which made physician collaborations with medical device companies visible. The results suggest that the effects of information disclosure are not uniform and that some market participants may benefit while others may suffer losses.