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Experience Goods, Expectations and Pricing

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  • JAE‐CHEOL KIM

Abstract

This paper studies a peculiar problem involved in the pricing of an ‘experience good’ whose value is not known to consumers until it is actually consumed It shows that the producer faces an expectational problem that does not arise in the framework of a ‘search good’. Noticing a link between markets in earlier and later periods due to the expectational problem, the present paper analyzes equilibrium price patterns when a producer can precommit to a certain future price path and when he cannot It also discusses social welfare implications.

Suggested Citation

  • Jae‐Cheol Kim, 1992. "Experience Goods, Expectations and Pricing," The Economic Record, The Economic Society of Australia, vol. 68(1), pages 7-15, March.
    • Handle: RePEc:bla:ecorec:v:68:y:1992:i:1:p:7-15
    DOI: 10.1111/j.1475-4932.1992.tb01745.x
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    References listed on IDEAS

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    1. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-1428, November.
    2. Kydland, Finn, 1975. "Noncooperative and Dominant Player Solutions in Discrete Dynamic Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 321-335, June.
    3. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
    4. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
    5. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    6. Kim, Jae-Cheol, 1985. "The Market for "Lemons" Reconsidered: A Model of the Used Car Market with Asymmetric Information," American Economic Review, American Economic Association, vol. 75(4), pages 836-843, September.
    7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Cited by:

    1. Krahmer, Daniel, 2003. "Entry and experimentation in oligopolistic markets for experience goods," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1201-1213, October.
    2. J. Miguel Villas-Boas, 2000. "Competing with Experience Goods," Econometric Society World Congress 2000 Contributed Papers 0771, Econometric Society.
    3. Krähmer, Daniel, 2002. "Entry and experimentation in oligopolistic markets for experience goods [Markteintritt und Experimentation in oligopolistischen Märkten für Erfahrungsgüter]," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-13, WZB Berlin Social Science Center.

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