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The Company You Keep: Qualitative Uncertainty in Providing Club Goods

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  • Bipasa Datta
  • Clive D Fraser

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.

Suggested Citation

  • Bipasa Datta & Clive D Fraser, 2006. "The Company You Keep: Qualitative Uncertainty in Providing Club Goods," Discussion Papers 06/21, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:06/21
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    References listed on IDEAS

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    Cited by:

    1. V. Masson & S. Choi & A. Moore & M. Oak, 2018. "A model of informal favor exchange on networks," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(5), pages 639-656, October.

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    More about this item

    Keywords

    Clubs; qualitative uncertainty; monopoly; welfarist;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H4 - Public Economics - - Publicly Provided Goods

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