Price Dynamics and Consumer Learning
AbstractThis paper studies the price dynamics induced by strategic firm behaviour in the presence of consumer learning about the uncertain quality differential of the products offered by a duopoly. It is found that consumers learn slowly and also that prices converge slowly to full-information levels. A consequence is that the incentives of firms to manipulate consumers’ beliefs are relatively persistent. Although pricing tends to be aggressive at the early stages, and average prices eventually increase over time, price wars may occur at intermediate stages of the product life-cycle.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1744.
Date of creation: Nov 1997
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Other versions of this item:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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