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The optimal choice of pre-launch reviewer

  • Gill, David
  • Sgroi, Daniel

We develop a framework in which: (i) a firm can have a new product tested publicly before launch; and (ii) tests vary in toughness, holding expertise fixed.� Price flexibility boosts the strong positive impact on consumer beliefs of passing a tough test and mitigates the strong negative impact of failing a soft test.� As a result, profits are convex in toughness: the firm selects either the toughest or softest test available.� The toughest test is optimal when consumers start with an unfavorable prior and receive sufficiently uninformative private signals (an "innovative" product); the softest test is optimal when signals are sufficiently informative.

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File URL: http://eprints.soton.ac.uk/167573/1/1017_with_cover.pdf
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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 1017.

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Date of creation: 01 Jan 2010
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Handle: RePEc:stn:sotoec:1017
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