Information asymmetries: A source of competitive advantage for diversified service firms

Abstract

Information asymmetries are generally considered as leading to costs for both parties in an exchange transaction. They can, however, also be a source of competitive advantage. Potential buyers face information asymmetries in evaluating services prior to purchase. Since such asymmetries impose costs on buyers, there exists an incentive to lower such costs. This incentive may be exploited by service firms that diversify into other services that meet the needs of existing customers.