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The Company You Keep: Qualitative Uncertainty in Providing Club Goods

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Author Info
Bipasa Datta
Clive D Fraser

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Abstract

Clubs are typically experience goods. Potential members cannot ascertain precisely beforehand their quality (dependent endogenously on the club's facility investment and number of users, itself dependent on its pricing policy). Members with unsatisfactory initial experiences discontinue visits. We show that a monopoly profit maximiser never offers a free trial period for such goods but, for a quality function homogeneous of any feasible degree, a welfare maximiser always does. When the quality function is homogeneous of degree zero, the monopolist provides a socially excessive level of quality to repeat buyers. In other possible regimes, the monopolist permits too little club usage.

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Publisher Info
Paper provided by Department of Economics, University of York in its series Discussion Papers with number 06/21.

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Date of creation: Oct 2006
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Handle: RePEc:yor:yorken:06/21

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Related research
Keywords: Clubs; qualitative uncertainty; monopoly; welfarist;

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Find related papers by JEL classification:
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
D60 - Microeconomics - - Welfare Economics - - - General
H4 - Public Economics - - Publicly Provided Goods

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  1. Glazer, Amihai & Niskanen, Esko & Scotchmer, Suzanne, 1997. "On the uses of club theory: Preface to the club theory symposium," Journal of Public Economics, Elsevier, vol. 65(1), pages 3-7, July. [Downloadable!] (restricted)
  2. Sandler, Todd & Sterbenz, Frederic P & Tschirhart, John, 1985. "Uncertainty and Clubs," Economica, London School of Economics and Political Science, vol. 52(208), pages 467-77, November. [Downloadable!] (restricted)
  3. Hoerger, Thomas J., 1993. "Two-part pricing for experience goods in the presence of adverse selection," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 451-474. [Downloadable!] (restricted)
  4. J. Miguel Villas-Boas, 2006. "Dynamic Competition with Experience Goods," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 15(1), pages 37-66, 03. [Downloadable!] (restricted)
  5. Suzanne Scotchmer, 1985. "Two-Tier Pricing of Shared Facilities in a Free-Entry Equilibrium," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 456-472, Winter. [Downloadable!] (restricted)
  6. Dirk Bergemann & Juuso Valimaki, 2004. "Monopoly Pricing of Experience Goods," Cowles Foundation Discussion Papers 1463R, Cowles Foundation, Yale University, revised May 2005. [Downloadable!]
  7. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March. [Downloadable!] (restricted)
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  8. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August. [Downloadable!] (restricted)
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  9. Fraser, Clive D., 2000. "When Is Efficiency Separable from Distribution in the Provision of Club Goods?," Journal of Economic Theory, Elsevier, vol. 90(2), pages 204-221, February. [Downloadable!] (restricted)
  10. Julia Liebeskind & Richard P. Rumelt, 1989. "Markets for Experience Goods with Performance Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 601-621, Winter. [Downloadable!] (restricted)
  11. Judd, Kenneth L & Riordan, Michael H, 1994. "Price and Quality in a New Product Monopoly," Review of Economic Studies, Blackwell Publishing, vol. 61(4), pages 773-89, October. [Downloadable!] (restricted)
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  12. Wooders, Myrna, 1978. "Equilibria, the core, and jurisdiction structures in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 18(2), pages 328-348, August. [Downloadable!] (restricted)
  13. Jacques Cremer, 1984. "On the Economics of Repeat Buying," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 396-403, Autumn. [Downloadable!] (restricted)
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