Bargaining over Data: When Does Making the Buyer More Informed Help?

The explosive growth of eBusiness has allowed many companies to accumulate a repertoire of unique data sets that can provide substantial value to other firms. These data sets are a growing source of revenue for their owners—one that can generate millions of dollars each year. Given its proprietary nature, the value of the data to a potential buyer is often uncertain to both parties. Therefore, a mutually acceptable price is usually arrived at through a process of negotiation. A seller can choose to provide a demonstration (demo; presentation) to mitigate this uncertainty and/or reduce bias. We adapt a generalization of Nash bargaining to identify when such demonstrations are appropriate and when they are not. We find that a moderately high-valued outside option can help the seller gain from a demonstration even when the buyer is not underestimating the value of the data. Demonstrations can also be useful when the buyer is biased and underestimates data set value. When both an outside option and underestimation exist, the provision of a demo that corrects for bias can make otherwise unsuccessful negotiations succeed; it also has the potential to trigger the provision of uncertainty-reducing information in the demo. In the presence of a demo cost, the seller can provide a partially informative demo; demos can also mitigate the effects of cannibalization up to a point.