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Dynamic Pricing of New Experience Goods

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  • Dirk Bergemann
  • Juuso Välimäki

Abstract

We develop a dynamic model of experience goods pricing with independent private valuations. We show that the optimal paths of sales and prices can be described in terms of a simple dichotomy. In a mass market, prices are declining over time. In a niche market, the optimal prices are initially low followed by higher prices that extract surplus from the buyers with a high willingness to pay. We consider extensions of the model to integrate elements of social rather than private learning and turnover among buyers.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 114 (2006)
Issue (Month): 4 (August)
Pages: 713-743

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Handle: RePEc:ucp:jpolec:v:114:y:2006:i:4:p:713-743

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Web page: http://www.journals.uchicago.edu/JPE/

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