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The Optimal Choice of Pre-Launch Reviewer

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  • David Gill
  • Daniel Sgroi

Abstract

We develop a framework in which: (i) a firm can have a new product tested publicly before launch; and (ii) tests vary in toughness, holding expertise fixed.� Price flexibility boosts the strong positive impact on consumer beliefs of passing a tough test and mitigates the strong negative impact of failing a soft test.� As a result, profits are convex in toughness: the firm selects either the toughest or softest test available.� The toughest test is optimal when consumers start with an unfavorable prior and receive sufficiently uninformative private signals (an "innovative" product); the softest test is optimal when signals are sufficiently informative.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 562.

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Date of creation: 01 Aug 2011
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Handle: RePEc:oxf:wpaper:562

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Related research

Keywords: Tests; reviewers; certification; Bayesian learning; information transmissions; marketing; product launch; bias; tough test; soft test;

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References

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Citations

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Cited by:
  1. Alexei Parakhonyak & Nick Vikander, 2013. "Optimal sales schemes for network goods," HSE Working papers WP BRP 41/EC/2013, National Research University Higher School of Economics.
  2. Barbos, Andrei, 2013. "Project screening with tiered evaluation," Mathematical Social Sciences, Elsevier, vol. 66(3), pages 293-306.
  3. Subir Bose & Gerhard Orosel & Marco Ottaviani & Lise Vesterlund, 2008. "Monopoly pricing in the binary herding model," Economic Theory, Springer, vol. 37(2), pages 203-241, November.
  4. Sgroi, Daniel & Oswald, Andrew J., 2012. "How Should Peer-Review Panels Behave?," IZA Discussion Papers 7024, Institute for the Study of Labor (IZA).
  5. Gill, David & Sgroi, Daniel, 2008. "Sequential decisions with tests," Games and Economic Behavior, Elsevier, vol. 63(2), pages 663-678, July.
  6. Ting Liu & Pasquale Schiraldi, 2012. "New product launch: herd seeking or herd preventing?," Economic Theory, Springer, vol. 51(3), pages 627-648, November.
  7. Santiago Oliveros & Felix Vardy, 2013. "Demand for Slant: How Abstention Shapes Voters’ Choice of News Media," Economics Discussion Papers 734, University of Essex, Department of Economics.
  8. Josh Lerner & Jean Tirole, 2006. "A Model of Forum Shopping," American Economic Review, American Economic Association, vol. 96(4), pages 1091-1113, September.
  9. William Goetzmann & S. Ravid & Ronald Sverdlove, 2013. "The pricing of soft and hard information: economic lessons from screenplay sales," Journal of Cultural Economics, Springer, vol. 37(2), pages 271-307, May.

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