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Information Spillovers in Experience Goods Competition

Author

Listed:
  • Zhuoqiong Charlie Chen
  • Christopher T. Stanton
  • Catherine Thomas

Abstract

When experience goods compete, consuming one product can be informative about value for similar untried products. We study a two-period model of duopoly competition in markets that have this feature and where firms can price discriminate between consumers based on purchasing history. Price dynamics, firm profits, and consumer surplus depend on how information spillovers shape demand from the consumers who have trialed the rival product—the potential switchers. In the first period, rather than competing intensely for all future profits, firms compete only for the difference in future profits between repeat and switching consumers. Demand-side information spillovers offer an explanation of how competing firms in new product markets can be profitable in all periods even when selling products that are indistinguishable ex ante.

Suggested Citation

  • Zhuoqiong Charlie Chen & Christopher T. Stanton & Catherine Thomas, 2021. "Information Spillovers in Experience Goods Competition," NBER Working Papers 28584, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:28584
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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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