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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. Sorensen, Alan T., 2004. "Bestseller Lists and Product Variety: The Case of Book Sales," Research Papers 1878, Stanford University, Graduate School of Business.
  2. Lones Smith & Peter Sorensen, 2000. "Pathological Outcomes of Observational Learning," Econometrica, Econometric Society, vol. 68(2), pages 371-398, March.
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  13. 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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  15. Heski Bar-Isaac, 2003. "Reputation and Survival: Learning in a Dynamic Signalling Model," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 231-251.
  16. Marco Ottaviani, . "Monopoly Pricing with Social Learning," ELSE working papers 035, ESRC Centre on Economics Learning and Social Evolution.
  17. Subir Bose & Gerhard O. Orosel & Lise Vesterlund, 2001. "Optimal Pricing and Endogenous Herding," Vienna Economics Papers 0204, University of Vienna, Department of Economics.
  18. Jack High (ed.), 2001. "Competition," Books, Edward Elgar Publishing, number 1751.
  19. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
  20. Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-48, September.
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  22. Dirk Bergemann & Juuso Valimaki, 1996. "Learning and Strategic Pricing," Cowles Foundation Discussion Papers 1113, Cowles Foundation for Research in Economics, Yale University.
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