Buyer experimentation and introductory pricing

Research output: Contribution to journalArticle

9 Scopus citations

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 languageEnglish (US)
Pages (from-to)347-362
Number of pages16
JournalJournal of Economic Behavior and Organization
Volume44
Issue number3
DOIs
StatePublished - Mar 1 2001

Keywords

  • D8
  • Experimentation
  • Introductory pricing
  • Learning
  • Quality uncertainty

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

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