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Dynamic Monopoly Pricing and Herding

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

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5003.

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Date of creation: Apr 2005
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Handle: RePEc:cpr:ceprdp:5003
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  1. Giuseppe Moscarin & Marco Ottaviani & Lones Smith, . "Social Learning in a Changing World," ELSE working papers 010, ESRC Centre on Economics Learning and Social Evolution.
  2. Marco Ottaviani, . "Monopoly Pricing with Social Learning," ELSE working papers 035, ESRC Centre on Economics Learning and Social Evolution.
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  4. Moscarini, Giuseppe & Ottaviani, Marco, 2001. "Price Competition for an Informed Buyer," Journal of Economic Theory, Elsevier, vol. 101(2), pages 457-493, December.
  5. Bergemann, Dirk & Valimaki, Juuso, 1996. "Learning and Strategic Pricing," Econometrica, Econometric Society, vol. 64(5), pages 1125-49, September.
  6. Taylor, Curtis R, 1999. "Time-on-the-Market as a Sign of Quality," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 555-78, July.
  7. 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.
  8. Smith, L. & Sorensen, P., 1996. "Pathological Outcomes of Observational Learning," Economics Papers 115, Economics Group, Nuffield College, University of Oxford.
  9. Aghion, P. & Bolton, P. & Harris, C. & Jullien, B., 1990. "Optimal Learning By Experimentation," DELTA Working Papers 90-10, DELTA (Ecole normale supérieure).
  10. Ramon Caminal & Xavier Vives, 1996. "Why Market Shares Matter: An Information-Based Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 221-239, Summer.
  11. 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.
  12. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
  13. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  14. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
  15. Becker, Gary S, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1109-16, October.
  16. 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.
  17. Aghion, Philippe, et al, 1991. "Optimal Learning by Experimentation," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 621-54, July.
  18. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  19. Sorensen, Alan T., 2004. "Bestseller Lists and Product Variety: The Case of Book Sales," Research Papers 1878, Stanford University, Graduate School of Business.
  20. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
  21. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
  22. Subir Bose & Gerhard O. Orosel & Lise Vesterlund, 2002. "Optimal Pricing and Endogenous Herding," CESifo Working Paper Series 727, CESifo Group Munich.
  23. Jack High (ed.), 2001. "Competition," Books, Edward Elgar, number 1751.
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