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Selling to Consumers with Endogenous Types


  • Boone, Jan
  • Shapiro, Joel


For many goods (such as experience goods or addictive goods), consumers' preferences may change over time. In this paper, we examine a monopolist's optimal pricing schedule when current consumption can affect a consumer's valuation in the future and valuations are unobservable. We assume that consumers are anonymous, i.e. the monopolist can't observe a consumer's past consumption history. For myopic consumers, the optimal consumption schedule is distorted upwards, involving substantial discounts for low valuation types. This pushes low types into higher valuations, from which rents can be extracted. For forward looking consumers, there may be a further upward distortion of consumption due to a reversal of the adverse selection effect; low valuation consumers now have a strong interest in consumption in order to increase their valuations. Firms will find it profitable to educate consumers and encourage forward-looking behaviour.

Suggested Citation

  • Boone, Jan & Shapiro, Joel, 2006. "Selling to Consumers with Endogenous Types," CEPR Discussion Papers 5862, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5862

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    References listed on IDEAS

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    Cited by:

    1. Dennis L. Gärtner, 2010. "Monopolistic screening under learning by doing," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 574-597.
    2. Alessandro Bonatti, 2011. "Menu Pricing and Learning," American Economic Journal: Microeconomics, American Economic Association, vol. 3(3), pages 124-163, August.
    3. Petal Jean Hackett, 2012. "Cutting too Close? Design Protection and Innovation in Fashion Goods," CESifo Working Paper Series 3716, CESifo Group Munich.

    More about this item


    addictive goods; endogenous types; experience goods; price discrimination;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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