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Price and Quality Cycles for Experience Goods

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  • Douglas Gale
  • Robert W. Rosenthal

Abstract

We explore a dynamic, competitive model for experience goods and study an equilibrium for it in which firms plan initially to produce high quality at low price, then high quality at high price, then low quality at high price. Each consumer is aware that all firms eventually intend to run down their reputations at customers' expense, yet he rationally chooses to wait for direct evidence that the firm to which he is attached has already entered into the exploitative phase.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28199424%2925%3A4%3C590%3APAQCFE%3E2.0.CO%3B2-B&origin=repec
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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 25 (1994)
Issue (Month): 4 (Winter)
Pages: 590-607

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Handle: RePEc:rje:randje:v:25:y:1994:i:winter:p:590-607

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Web page: http://www.rje.org

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Web: http://gemini.econ.umd.edu/cgi-bin/rje_online.cgi

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Cited by:
  1. George J. Mailath & Larry Samuelson, . "Your Reputation Is Who You're Not, Not Who You'd Like To Be," Penn CARESS Working Papers bb1b279d6539c9ed3b83a027c, Penn Economics Department.
  2. K. Chau & S. Wong & C. Yiu, 2007. "Housing Quality in the Forward Contracts Market," The Journal of Real Estate Finance and Economics, Springer, vol. 34(3), pages 313-325, April.
  3. Mailath,G.J. & Samuelson,L., 1998. "Who wants a good reputation?," Working papers 19, Wisconsin Madison - Social Systems.
  4. Cabral, Luís M B & Hortaçsu, Ali, 2004. "The Dynamics of Seller Reputation: Theory and Evidence from eBay," CEPR Discussion Papers 4345, C.E.P.R. Discussion Papers.
  5. Giorgio Coricelli & Luigi Luini, 1999. "Double Moral Hazard: an Experiment on Warranties," CEEL Working Papers 9901, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
  6. Hortacsu, Ali, 2005. "Trust and Reputation on eBay: Micro and Macro Perspectives," Department of Economics, Working Paper Series qt8vj7d50q, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  7. J. Miguel Villas-Boas, 2000. "Competing with Experience Goods," Econometric Society World Congress 2000 Contributed Papers 0771, Econometric Society.
  8. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.

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