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The Company You Keep: Qualitative Uncertainty in Providing Club Goods

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  • Bipasa Datta
  • Clive D Fraser

Abstract

Clubs are typically experience goods. Potential members cannot ascertain precisely beforehand their quality (dependent endogenously on the club's facility investment and number of users, itself dependent on its pricing policy). Members with unsatisfactory initial experiences discontinue visits. We show that a monopoly profit maximiser never offers a free trial period for such goods but, for a quality function homogeneous of any feasible degree, a welfare maximiser always does. When the quality function is homogeneous of degree zero, the monopolist provides a socially excessive level of quality to repeat buyers. In other possible regimes, the monopolist permits too little club usage.

Suggested Citation

  • Bipasa Datta & Clive D Fraser, 2006. "The Company You Keep: Qualitative Uncertainty in Providing Club Goods," Discussion Papers 06/21, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:06/21
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    References listed on IDEAS

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    1. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
    2. Kenneth L. Judd & Michael H. Riordan, 1994. "Price and Quality in a New Product Monopoly," Review of Economic Studies, Oxford University Press, vol. 61(4), pages 773-789.
    3. Jacques Cremer, 1984. "On the Economics of Repeat Buying," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 396-403, Autumn.
    4. Glazer, Amihai & Niskanen, Esko & Scotchmer, Suzanne, 1997. "On the uses of club theory: Preface to the club theory symposium," Journal of Public Economics, Elsevier, vol. 65(1), pages 3-7, July.
    5. Hoerger, Thomas J., 1993. "Two-part pricing for experience goods in the presence of adverse selection," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 451-474.
    6. Dirk Bergemann & Juuso Valimaki, 2004. "Monopoly Pricing of Experience Goods," Cowles Foundation Discussion Papers 1463R, Cowles Foundation for Research in Economics, Yale University, revised May 2005.
    7. Julia Liebeskind & Richard P. Rumelt, 1989. "Markets for Experience Goods with Performance Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 601-621, Winter.
    8. J. Miguel Villas-Boas, 2006. "Dynamic Competition with Experience Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 37-66, March.
    9. Barro, Robert J & Romer, Paul M, 1987. "Ski-Lift Pricing, with Applications to Labor and Other," American Economic Review, American Economic Association, vol. 77(5), pages 875-890, December.
    10. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-239, March.
    11. Fraser, Clive D., 2000. "When Is Efficiency Separable from Distribution in the Provision of Club Goods?," Journal of Economic Theory, Elsevier, vol. 90(2), pages 204-221, February.
    12. Sandler, Todd & Sterbenz, Frederic P & Tschirhart, John, 1985. "Uncertainty and Clubs," Economica, London School of Economics and Political Science, vol. 52(208), pages 467-477, November.
    13. Wooders, Myrna, 1978. "Equilibria, the core, and jurisdiction structures in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 18(2), pages 328-348, August.
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    More about this item

    Keywords

    Clubs; qualitative uncertainty; monopoly; welfarist;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H4 - Public Economics - - Publicly Provided Goods

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