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Learning and Strategic Pricing

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Author Info
Bergemann, Dirk
Valimaki, Juuso

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Abstract

The authors consider a single consumer buying a stream of goods from different sellers over time. The true value of each seller's product is initially unknown. Additional information is obtained by experimentation. For exogenous prices, this is a multiarmed bandit problem. The innovation here is to endogenize the cost of experimentation by allowing for price competition between the sellers. Prices determine the intertemporal costs and benefits of learning for buyer and sellers. All Markov perfect equilibria are efficient. Prices below marginal cost sustain experimentation. Intertemporal exchange of the gains of learning is necessary to support efficient experimentation. Copyright 1996 by The Econometric Society.

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Publisher Info
Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 64 (1996)
Issue (Month): 5 (September)
Pages: 1125-49
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Handle: RePEc:ecm:emetrp:v:64:y:1996:i:5:p:1125-49

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References listed on IDEAS
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.:
  1. Miller, Robert A, 1984. "Job Matching and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1086-120, December. [Downloadable!] (restricted)
  2. Bertola, Giuseppe & Felli, Leonardo, 1993. "Job matching and the distribution of producer surplus," Ricerche Economiche, Elsevier, vol. 47(1), pages 65-92, March. [Downloadable!] (restricted)
  3. Banks, Jeffrey S & Sundaram, Rangarajan K, 1992. "Denumerable-Armed Bandits," Econometrica, Econometric Society, vol. 60(5), pages 1071-96, September. [Downloadable!] (restricted)
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  4. Bergemann, Dirk & Valimaki, Juuso, 1996. "Learning and Strategic Pricing," Econometrica, Econometric Society, vol. 64(5), pages 1125-49, September. [Downloadable!] (restricted)
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  5. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October. [Downloadable!] (restricted)
  6. Aghion Philippe & Bolton, Patrick & Harris Christopher & Jullien Bruno, 1991. "Optimal learning by experimentation," CEPREMAP Working Papers (Couverture Orange) 9104, CEPREMAP.
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  7. McLennan, Andrew, 1984. "Price dispersion and incomplete learning in the long run," Journal of Economic Dynamics and Control, Elsevier, vol. 7(3), pages 331-347, September. [Downloadable!] (restricted)
  8. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October. [Downloadable!] (restricted)
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  9. Aghion, Philippe, et al, 1991. "Optimal Learning by Experimentation," Review of Economic Studies, Blackwell Publishing, vol. 58(4), pages 621-54, July. [Downloadable!] (restricted)
  10. Rob, Rafael, 1991. "Learning and Capacity Expansion under Demand Uncertainty," Review of Economic Studies, Blackwell Publishing, vol. 58(4), pages 655-75, July. [Downloadable!] (restricted)
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