Monopoly Pricing of Experience Goods
We develop a dynamic model of experience goods pricing with independent private valuations. We show that the optimal paths of sales and prices can be described in terms of a simple dichotomy. In a mass market, prices are declining over time. In a niche market, the optimal prices are initially low followed by higher prices that extract surplus from the buyers with a high willingness to pay. We consider extensions of the model to integrate elements of social rather than private learning and turnover among buyers.
|Date of creation:||Jun 2004|
|Date of revision:||May 2005|
|Publication status:||Published in Journal of Political Economy (2006), 114(4): 713-743|
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