Shopping for Information: Implications of Consumer Learning for Optimal Pricing and Product Design

Marilyn Pease

Journal of Industrial Economics, 2023, vol. 71, issue 3, 883-923

Abstract: I study a seller's pricing problem where consumers perform costly product research about value before purchase. They buy the product when sufficiently optimistic about value and cease research when sufficiently pessimistic. I find that the seller encourages product research when prior belief about value is high, even though he could sell immediately for a high price. The prior affects both expected value and how additional information changes consumers' beliefs. I show that an increase in research cost affects equilibrium price nonmonotonically. Finally, when the seller chooses price and product value dispersion, the optimal level of dispersion need not be extremal.

Date: 2023
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