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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Length: 46 pages Date of creation: Jun 2004 Date of revision:
May 2005 Publication status: Published in Journal of Political Economy (2006), 114(4): 713-743 Handle: RePEc:cwl:cwldpp:1463
Find related papers by JEL classification: D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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