Optimal Pricing of Experience Goods
AbstractA monopolist's optimal price path over time is examined for situations in which consumers initially misestimate product quality and learn about it by using the good. Information about the product is bundled with the product itself. Two very different cases are studied. In the optimistic case, consumers initially overestimate quality, and the optimal way to milk a reputation is via a declining price path followed by a jump up to a terminal price. There are no long-run effects due to initial misperceptions. In the pessimistic case, consumers underestimate quality, and the optimal way to build a reputation is to use a low introductory price followed by a higher regular price. In this case, initial misperceptions adversely affect welfare in both the short and long run.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal Bell Journal of Economics.
Volume (Year): 14 (1983)
Issue (Month): 2 (Autumn)
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Web page: http://www.rje.org
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- Beat Hintermann & Andreas Lange, 2012. "Learning Abatement Costs: On the Dynamics of Optimal Regulation of Experience Goods," CESifo Working Paper Series 4058, CESifo Group Munich.
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