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The optimal choice of pre-launch reviewer

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Author Info

  • Gill, David
  • Sgroi, Daniel

Abstract

We develop a framework in which: (i) a firm can have a new product tested publicly before launch; and (ii) tests vary in toughness, holding expertise fixed. Price flexibility boosts the positive impact on consumer beliefs of passing a tough test and mitigates the negative impact of failing a soft test. As a result, profits are convex in toughness: the firm selects either the toughest or softest test available. The toughest test is optimal when consumers start with an unfavorable prior and receive sufficiently uninformative private signals (an “innovative” product); the softest test is optimal when signals are sufficiently informative.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 147 (2012)
Issue (Month): 3 ()
Pages: 1247-1260

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Handle: RePEc:eee:jetheo:v:147:y:2012:i:3:p:1247-1260

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Web page: http://www.elsevier.com/locate/inca/622869

Related research

Keywords: Test; Reviewer; Certification; Bayesian learning; Information transmission; Marketing; Product launch; Bias; Tough test; Soft test;

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References

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Citations

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Cited by:
  1. Alexei Parakhonyak & Nick Vikander, 2013. "Optimal Sales Schemes for Network Goods," Discussion Papers 13-11, University of Copenhagen. Department of Economics.
  2. Subir Bose & Gerhard Orosel & Marco Ottaviani & Lise Vesterlund, 2008. "Monopoly pricing in the binary herding model," Economic Theory, Springer, vol. 37(2), pages 203-241, November.
  3. Santiago Oliveros & Felix Vardy, 2013. "Demand for Slant: How Abstention Shapes Voters’ Choice of News Media," Economics Discussion Papers 734, University of Essex, Department of Economics.
  4. Barbos, Andrei, 2012. "Project Screening with Tiered Evaluation," MPRA Paper 40848, University Library of Munich, Germany.
  5. Josh Lerner & Jean Tirole, 2006. "A Model of Forum Shopping," American Economic Review, American Economic Association, vol. 96(4), pages 1091-1113, September.
  6. Gill, David & Sgroi, Daniel, 2008. "Sequential decisions with tests," Games and Economic Behavior, Elsevier, vol. 63(2), pages 663-678, July.
  7. Sgroi, Daniel & Oswald, Andrew J., 2012. "How Should Peer-Review Panels Behave?," IZA Discussion Papers 7024, Institute for the Study of Labor (IZA).

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