Abstract
We study the pricing decisions of a monopolist seller in a two-period model in which buyers and the seller are all uncertain about a good's quality. We assume that buyers not only learn from experience, but also may experiment, that is, increase the amount of information by consuming more. We define an introductory price to be a first period equilibrium price lower than that which maximizes period 1 profit. The motivation for introductory pricing is that, under certain conditions, the seller prefers its buyers to be better informed about quality. A lower initial price increases consumption and hence information. We consider two versions of the model: identical buyers with a public signal of quality; heterogeneous buyers who each receive a private quality signal.
Original language | English (US) |
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Pages (from-to) | 347-362 |
Number of pages | 16 |
Journal | Journal of Economic Behavior and Organization |
Volume | 44 |
Issue number | 3 |
DOIs | |
State | Published - Mar 2001 |
Keywords
- D8
- Experimentation
- Introductory pricing
- Learning
- Quality uncertainty
ASJC Scopus subject areas
- Economics and Econometrics
- Organizational Behavior and Human Resource Management