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Price and Quality Cycles for Experience Goods


  • Douglas Gale
  • Robert W. Rosenthal


We explore a dynamic, competitive model for experience goods and study an equilibrium for it in which firms plan initially to produce high quality at low price, then high quality at high price, then low quality at high price. Each consumer is aware that all firms eventually intend to run down their reputations at customers' expense, yet he rationally chooses to wait for direct evidence that the firm to which he is attached has already entered into the exploitative phase.

Suggested Citation

  • Douglas Gale & Robert W. Rosenthal, 1994. "Price and Quality Cycles for Experience Goods," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 590-607, Winter.
  • Handle: RePEc:rje:randje:v:25:y:1994:i:winter:p:590-607

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    References listed on IDEAS

    1. Lacy Glenn Thomas, 1990. "Regulation and Firm Size: FDA Impacts on Innovation," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 497-517, Winter.
    2. Newey, Whitney K, 1990. "Efficient Instrumental Variables Estimation of Nonlinear Models," Econometrica, Econometric Society, vol. 58(4), pages 809-837, July.
    3. Taylor, John B & Uhlig, Harald, 1990. "Solving Nonlinear Stochastic Growth Models: A Comparison of Alternative Solution Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 1-17, January.
    4. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
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    Cited by:

    1. George J. Mailath & Larry Samuelson, 2001. "Who Wants a Good Reputation?," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 415-441.
    2. George J. Mailath & Larry Samuelson, "undated". "Your Reputation Is Who You're Not, Not Who You'd Like To Be," Penn CARESS Working Papers bb1b279d6539c9ed3b83a027c, Penn Economics Department.
    3. J. Miguel Villas-Boas, 2000. "Competing with Experience Goods," Econometric Society World Congress 2000 Contributed Papers 0771, Econometric Society.
    4. Luis Cabral & Ali Hortacsu, 2004. "The Dynamics of Seller Reputation: Theory and Evidence from eBay," NBER Working Papers 10363, National Bureau of Economic Research, Inc.
    5. Tara Mitchell, 2016. "Quality Observability and the Structure of Agricultural Supply Chains," Trinity Economics Papers tep1316, Trinity College Dublin, Department of Economics.
    6. Manolis Galenianos & Alessandro Gavazza, 2014. "A quantitative analysis of the retail market for illicit drugs," 2014 Meeting Papers 618, Society for Economic Dynamics.
    7. Panzar John C & Savage Ian, 2011. "Does a Minimum Quality Standard Always Reduce the Price of High Quality Products?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-32, June.
    8. Christian Matt & Thomas Hess, 2016. "Product fit uncertainty and its effects on vendor choice: an experimental study," Electronic Markets, Springer;IIM University of St. Gallen, vol. 26(1), pages 83-93, February.
    9. Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 53-74, February.
    10. Hortacsu, Ali, 2005. "Trust and Reputation on eBay: Micro and Macro Perspectives," Department of Economics, Working Paper Series qt8vj7d50q, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    11. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.
    12. Rutherford, William & McGimpsey, William & Narayan, Prakash, 2013. "Evaluation of New Zealand’s regulatory framework to support the reputation of horticultural commodity exports," 2013 Conference, August 28-30, 2013, Christchurch, New Zealand 187038, New Zealand Agricultural and Resource Economics Society.

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