Direct and Indirect Sale of Information

Anat Admati and Paul Pfleiderer

Econometrica, 1990, vol. 58, issue 4, 901-28

Abstract: The authors compare two methods for a monopolist to sell information to traders in a financial market. In a direct sale, information buyers observe versions of the seller's signal while in an indirect sale the seller sells shares in a portfolio based on his private information. It is shown that, when traders are identical and pricing is linear, there is a trade-off between optimal surplus extraction that is possible under direct sale and more effective control of the usage of information that is possible under indirect sale. The optimal selling method depends on how much information is revealed by equilibrium prices. Copyright 1990 by The Econometric Society.

Date: 1990
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