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Social Learning and Dynamic Pricing of Durable Goods

Author

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  • Bing Jing

    () (Cheung Kong Graduate School of Business, Beijing 100738, People's Republic of China)

Abstract

We analyze the impacts of social learning (SL) on the dynamic pricing and consumer adoption of durable goods in a two-period monopoly. Consumers can make either early, uninformed purchases or late but potentially informed purchases as a result of social learning. Several results are derived. First, we identify the market conditions under which ex ante homogeneous consumers may choose to purchase at different times. Second, equilibrium adoption may demonstrate inertia (where all adopt late) or frenzy (where all adopt early). In particular, adoption inertia appears when SL intensity is reasonably high but may vanish when SL intensity exceeds a certain threshold. Third, firm profits and social welfare first weakly decrease in SL intensity and may then jump up by a lump-sum amount at the threshold SL intensity level mentioned above. Last, we show that the firm potentially benefits from informative advertising or investing to cultivate more social learning.

Suggested Citation

  • Bing Jing, 2011. "Social Learning and Dynamic Pricing of Durable Goods," Marketing Science, INFORMS, vol. 30(5), pages 851-865, September.
  • Handle: RePEc:inm:ormksc:v:30:y:2011:i:5:p:851-865
    DOI: 10.1287/mksc.1110.0649
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    File URL: http://dx.doi.org/10.1287/mksc.1110.0649
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    References listed on IDEAS

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    Cited by:

    1. Régis Chenavaz & Corina Paraschiv & Gabriel Turinici, 2017. "Dynamic Pricing of New Products in Competitive Markets: A Mean-Field Game Approach," Working Papers hal-01592958, HAL.
    2. Aoyagi, Masaki & Bhalla, Manaswini & Gunay, Hikmet, 2016. "Social learning and delay in a dynamic model of price competition," Journal of Economic Theory, Elsevier, vol. 165(C), pages 565-600.
    3. Zheyin (Jane) Gu & Yunchuan Liu, 2014. "Consumer Learning on Social Networks and Retailer Digital Platform Strategies Access," Working Papers 14-02, NET Institute.
    4. Liangfei Qiu & Asoo Vakharia & Arunima Chhikara, 2019. "Multi-Dimensional Observational Learning in Social Networks: Theory and Experimental Evidence," Working Papers 19-01, NET Institute.
    5. Wen, Xiaoqin & Xu, Chen & Hu, Qiying, 2016. "Dynamic capacity management with uncertain demand and dynamic price," International Journal of Production Economics, Elsevier, vol. 175(C), pages 121-131.
    6. Marius F. Niculescu & D. J. Wu, 2014. "Economics of Free Under Perpetual Licensing: Implications for the Software Industry," Information Systems Research, INFORMS, vol. 25(1), pages 173-199, March.
    7. Zheyin (Jane) Gu & Giri K. Tayi, 2015. "Research Note—Investigating Firm Strategies on Offering Consumer-Customizable Products," Information Systems Research, INFORMS, vol. 26(2), pages 456-468, June.
    8. Man Yu & Laurens Debo & Roman Kapuscinski, 2016. "Strategic Waiting for Consumer-Generated Quality Information: Dynamic Pricing of New Experience Goods," Management Science, INFORMS, vol. 62(2), pages 410-435, February.
    9. Upender Subramanian & Ram C. Rao, 2016. "Leveraging Experienced Consumers to Attract New Consumers: An Equilibrium Analysis of Displaying Deal Sales by Daily Deal Websites," Management Science, INFORMS, vol. 62(12), pages 3555-3575, December.
    10. Gad Allon & Jan Van Mieghem & Dennis Zhang, 2016. "Does Social Interaction Improve Learning Outcomes? Field Evidence from Massive Open Online Education," Natural Field Experiments 00574, The Field Experiments Website.
    11. Islam, Towhidul & Meade, Nigel, 2015. "Firm level innovation diffusion of 3G mobile connections in international context," International Journal of Forecasting, Elsevier, vol. 31(4), pages 1138-1152.
    12. repec:eee:jomega:v:84:y:2019:i:c:p:175-188 is not listed on IDEAS

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    Keywords

    durable goods; dynamic pricing; social learning;

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