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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 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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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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  1. Sgroi, Daniel, 2002. "Optimizing Information in the Herd: Guinea Pigs, Profits, and Welfare," Games and Economic Behavior, Elsevier, vol. 39(1), pages 137-166, April.
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Cited by:
  1. Josh Lerner & Jean Tirole, 2006. "A Model of Forum Shopping," American Economic Review, American Economic Association, vol. 96(4), pages 1091-1113, September.
  2. 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.
  3. Daniel Sgroi & Andrew J. Oswald, 2013. "How Should Peer‐review Panels Behave?," Economic Journal, Royal Economic Society, vol. 0, pages F255-F278, 08.
  4. 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.
  5. David Gill & Daniel Sgroi, 2005. "Sequential Decisions with Tests," Economics Series Working Papers 242, University of Oxford, Department of Economics.
  6. Barbos, Andrei, 2013. "Project screening with tiered evaluation," Mathematical Social Sciences, Elsevier, vol. 66(3), pages 293-306.
  7. Ting Liu & Pasquale Schiraldi, 2012. "New product launch: herd seeking or herd preventing?," Economic Theory, Springer, vol. 51(3), pages 627-648, November.
  8. 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.

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