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Dynamic monopoly pricing and herding

Author

Listed:
  • Subir Bose
  • Gerhard Orosel
  • Marco Ottaviani
  • Lise Vesterlund

Abstract

This paper studies dynamic pricing by a monopolist selling to buyers who learn from each other?s purchases. The price posted in each period serves to extract rent from the current buyer, as well as to control the amount of information transmitted to future buyers. As information increases future rent extraction, the monopolist has an incentive to subsidize learning by charging a price that results in information revelation. Nonetheless in the long run, the monopolist generally induces herding by either selling to all buyers or exiting the market.
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Suggested Citation

  • Subir Bose & Gerhard Orosel & Marco Ottaviani & Lise Vesterlund, 2006. "Dynamic monopoly pricing and herding," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 910-928, December.
    • Handle: RePEc:bla:randje:v:37:y:2006:i:4:p:910-928
    DOI: j.1756-2171.2006.tb00063.x
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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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