Information-acquisition cost is the cost incurred by investors to collect, study, and analyze information before making investment decisions.
This may include research reports, analyst services, data tools, financial models, and time spent on analysis.
If information costs are high, fewer investors may analyze securities. This can reduce market efficiency.
Example:
Suppose an investor spends ₹50,000 on research to identify an undervalued stock.
The investor buys the stock and earns a gross profit of ₹70,000.
Net profit after research cost:
₹70,000 – ₹50,000 = ₹20,000
In this case, the investor still earns a profit.
But if the gross profit was only ₹40,000, then:
₹40,000 – ₹50,000 = -₹10,000
The investor would lose money after considering information cost.
So, information must provide enough benefit to justify its cost.
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