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The optimal choice of pre-launch reviewer

Author Info

Listed author(s):
  • Gill, David
  • Sgroi, Daniel

Abstract

We develop a framework in which: (i) a firm can have a new product tested publicly before launch; and (ii) tests vary in toughness, holding expertise fixed. Price flexibility boosts the positive impact on consumer beliefs of passing a tough test and mitigates the negative impact of failing a soft test. As a result, profits are convex in toughness: the firm selects either the toughest or softest test available. The toughest test is optimal when consumers start with an unfavorable prior and receive sufficiently uninformative private signals (an “innovative” product); the softest test is optimal when signals are sufficiently informative.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022053112000208
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 147 (2012)
Issue (Month): 3 ()
Pages: 1247-1260

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Handle: RePEc:eee:jetheo:v:147:y:2012:i:3:p:1247-1260
DOI: 10.1016/j.jet.2012.01.019
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

Keywords: Test; Reviewer; Certification; Bayesian learning; Information transmission; Marketing; Product launch; Bias; Tough test; Soft test;

Other versions of this item:

Find related papers by JEL classification:
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
  • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

References listed on IDEAS
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