Information Percolation in Segmented Markets

We calculate equilibria of dynamic double-auction markets in which agents are distinguished by their preferences and information. Over time, agents are privately informed by bids and offers. Investors are segmented into groups that differ with respect to characteristics determining information quality, including initial infor- mation precision as well as market \connectivity," the expected frequency of their trading opportunities. Investors with superior information sources attain higher expected profits, provided their counterparties are unable to observe the qual- ity of those sources. If, however, the quality of bidders' information sources are commonly observable, then, under conditions, investors with superior information sources have lower expected profits.