How to Sell Hard Information

TL;DR

This paper examines how an intermediary designs and sells noisy tests for hard information about asset value to maximize revenue, often charging for disclosure without social value creation.

Contribution

It reveals that robust revenue maximization leads to noisy tests with exponential score distributions and that intermediaries charge for disclosure but not testing.

Findings

Intermediaries prefer noisy tests over accurate ones for revenue maximization.

Test scores are distributed exponentially, providing no social value.

Intermediaries charge sellers for disclosure, capturing surplus.

Abstract

The seller of an asset has the option to buy hard information about the value of the asset from an intermediary. The seller can then disclose the acquired information before selling the asset in a competitive market. We study how the intermediary designs and sells hard information to robustly maximize her revenue across all equilibria. Even though the intermediary could use an accurate test that reveals the asset's value, we show that robust revenue maximization leads to a noisy test with a continuum of possible scores that are distributed exponentially. In addition, the intermediary always charges the seller for disclosing the test score to the market, but not necessarily for running the test. This enables the intermediary to robustly appropriate a significant share of the surplus resulting from the asset sale even though the information generated by the test provides no social value.