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The optimal choice of pre-launch reviewer

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  • Gill, David
  • Sgroi, Daniel

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 positive impact on consumer beliefs of passing a tough test and mitigates the 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 Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 1017.

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Date of creation: 01 Jan 2010
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Handle: RePEc:stn:sotoec:1017

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Citations

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Cited by:
  1. David Gill & Daniel Sgroi, 2005. "Sequential Decisions with Tests," Economics Series Working Papers 242, University of Oxford, Department of Economics.
  2. 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.
  3. Sgroi, Daniel & Oswald, Andrew J., 2012. "How Should Peer-Review Panels Behave?," IZA Discussion Papers 7024, Institute for the Study of Labor (IZA).
  4. 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.
  5. 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.
  6. Barbos, Andrei, 2013. "Project screening with tiered evaluation," Mathematical Social Sciences, Elsevier, vol. 66(3), pages 293-306.
  7. Josh Lerner & Jean Tirole, 2006. "A Model of Forum Shopping," American Economic Review, American Economic Association, vol. 96(4), pages 1091-1113, September.
  8. 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.
  9. Ting Liu & Pasquale Schiraldi, 2012. "New product launch: herd seeking or herd preventing?," Economic Theory, Springer, vol. 51(3), pages 627-648, November.

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