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Dynamic Pricing of New Experience Goods

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Author Info

  • 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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Citations

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Cited by:
  1. Saak, Alexander E., 2010. "Dynamic Informative Advertising of New Experience Goods," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61326, Agricultural and Applied Economics Association.
  2. Julia Cagé & Dorothée Rouzet, 2013. "Improving "National Brands": Reputation for Quality and Export Promotion Strategies," PSE Working Papers halshs-00797006, HAL.
  3. Janssen, Maarten C.W. & Roy, Santanu, 2010. "Signaling quality through prices in an oligopoly," Games and Economic Behavior, Elsevier, vol. 68(1), pages 192-207, January.
  4. Pascaline Dupas, 2010. "Short-Run Subsidies and Long-Run Adoption of New Health Products: Evidence from a Field Experiment," NBER Working Papers 16298, National Bureau of Economic Research, Inc.
  5. Alexia Gaudeul, 2010. "Software marketing on the Internet: the use of samples and repositories," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 19(3), pages 259-281.
  6. Alexander E. Saak, 2011. "A Model of Labeling with Horizontal Differentiation and Cost Variability," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(4), pages 1131-1150.
  7. Ivanov, Maxim, 2009. "Niche market or mass market?," Economics Letters, Elsevier, vol. 105(3), pages 217-220, December.
  8. Ed Hopkins, 2004. "Adaptive Learning Models of Consumer Behaviour," ESE Discussion Papers 121, Edinburgh School of Economics, University of Edinburgh.
  9. Ching, Andrew & Ishihara, Masakazu, 2007. "The Effects of Detailing on Prescribing Decisions under Two-Sided Learning," MPRA Paper 4935, University Library of Munich, Germany.
  10. 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.
  11. Jie Chen & John Rizzo, 2012. "Pricing dynamics and product quality: the case of antidepressant drugs," Empirical Economics, Springer, vol. 42(1), pages 279-300, February.
  12. Maarten C.W. Janssen & Santanu Roy, 2007. "Signaling Quality through Prices in an Oligopoly," Tinbergen Institute Discussion Papers 07-081/1, Tinbergen Institute.

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