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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. Aghion, P. & Bolton, P. & Harris, C. & Jullien, B., 1990. "Optimal Learning By Experimentation," DELTA Working Papers 90-10, DELTA (Ecole normale supérieure).
  2. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
  3. 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.
  4. Gary S. Becker, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," University of Chicago - George G. Stigler Center for Study of Economy and State 67, Chicago - Center for Study of Economy and State.
  5. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
  6. 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.
  7. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
  8. Marco Ottaviani, . "Monopoly Pricing with Social Learning," ELSE working papers 035, ESRC Centre on Economics Learning and Social Evolution.
  9. David P. Myatt & Justin P. Johnson, 2004. "On the Simple Economics of Advertising, Marketing, and Product Design," Economics Series Working Papers 185, University of Oxford, Department of Economics.
  10. Smith, L, 1996. "Social Learning in a Changing World," Working papers 96-34, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. 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.
  12. 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.
  13. Giuseppe Moscarini & Marco Ottaviani, 1998. "Price Competition for an Informed Buyer," Cowles Foundation Discussion Papers 1199, Cowles Foundation for Research in Economics, Yale University.
  14. Jack High (ed.), 2001. "Competition," Books, Edward Elgar, number 1751.
  15. 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.
  16. Lones Smith & Peter Sorensen, 2000. "Pathological Outcomes of Observational Learning," Econometrica, Econometric Society, vol. 68(2), pages 371-398, March.
  17. repec:oup:restud:v:66:y:1999:i:3:p:555-78 is not listed on IDEAS
  18. Zvika NEEMAN & Gerhard O. OROSEL, 1997. "Herding and the Winner's Curse in Markets with Sequential Bids," Vienna Economics Papers vie9711, University of Vienna, Department of Economics.
  19. Subir Bose & Gerhard O. Orosel & Lise Vesterlund, 2001. "Optimal Pricing and Endogenous Herding," Vienna Economics Papers 0204, University of Vienna, Department of Economics.
  20. Sorensen, Alan T., 2004. "Bestseller Lists and Product Variety: The Case of Book Sales," Research Papers 1878, Stanford University, Graduate School of Business.
  21. 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.
  22. Bergemann, Dirk & Valimaki, Juuso, 1996. "Learning and Strategic Pricing," Econometrica, Econometric Society, vol. 64(5), pages 1125-49, September.
  23. repec:oup:restud:v:58:y:1991:i:4:p:621-54 is not listed on IDEAS
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