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Dynamic monopoly pricing and herding

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

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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File URL: http://hdl.handle.net/10.1111/j.1756-2171.2006.tb00063.x
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Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 37 (2006)
Issue (Month): 4 (December)
Pages: 910-928

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Handle: RePEc:bla:randje:v:37:y:2006:i:4:p:910-928
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  1. Dirk Bergemann & Juuso Valimaki, 1996. "Learning and Strategic Pricing," Cowles Foundation Discussion Papers 1113, Cowles Foundation for Research in Economics, Yale University.
  2. Marco Ottaviani, . "Monopoly Pricing with Social Learning," ELSE working papers 035, ESRC Centre on Economics Learning and Social Evolution.
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  5. Marco Ottaviani & Giuseppe Moscarini & Lones Smith, 1998. "Social learning in a changing world," Economic Theory, Springer, vol. 11(3), pages 657-665.
  6. Subir Bose & Gerhard O. Orosel & Lise Vesterlund, 2001. "Optimal Pricing and Endogenous Herding," Vienna Economics Papers 0204, University of Vienna, Department of Economics.
  7. David P. Myatt & Justin P. Johnson, 2004. "On the Simple Economics of Advertising, Marketing, and Product Design," Economics Series Working Papers 185, University of Oxford, Department of Economics.
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  17. Gary S. Becker, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," University of Chicago - George G. Stigler Center for Study of Economy and State 67, Chicago - Center for Study of Economy and State.
  18. Neeman, Zvika & Orosel, Gerhard O., 1999. "Herding and the Winner's Curse in Markets with Sequential Bids," Journal of Economic Theory, Elsevier, vol. 85(1), pages 91-121, March.
  19. Aghion, Philippe, et al, 1991. "Optimal Learning by Experimentation," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 621-54, July.
  20. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
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