Pricing Diagnostic Information
AbstractDiagnostic information allows an agent to predict the state of nature about the success of an investment project better than the prior. We analyze the optimal pricing scheme for selling diagnostic information to buyers with different, privately known, ex ante success probability. Investment costs and returns of successful projects are assumed to be the same for all buyers. The value of diagnostic information is the difference in expected payoffs with and without it, and we show that the willingness to pay for diagnostic information is nonmonotonic in the ex ante success probability. When the information seller can offer only one quality level, and negative payments are not allowed, we find that the optimal menu of (linear) contracts is remarkably simple. A pure royalty is offered to buyers with low ex ante success probability, and a pure fixed fee is offered to buyers with high ex ante success probability.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 51 (2005)
Issue (Month): 7 (July)
pricing; diagnostic information; marketing research;
Other versions of this item:
- Arora, Ashish & Fosfuri, Andrea, 2005. "Pricing Diagnostic Information," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/6674, Universidad Carlos III de Madrid.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yannis Bakos & Erik Brynjolfsson, 1997.
"Bundling Information Goods: Pricing, Profits and Efficiency,"
Working Paper Series
199, MIT Center for Coordination Science.
- Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
- Chwolka, Anne & Raith, Matthias G., 2012. "The value of business planning before start-up — A decision-theoretical perspective," Journal of Business Venturing, Elsevier, vol. 27(3), pages 385-399.
- Wright, Brian D. & Pardey, Philip G. & Nottenburg, Carol & Koo, Bonwoo, 2007. "Agricultural Innovation: Investments and Incentives," Handbook of Agricultural Economics, Elsevier.
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