Information Spillovers in Experience Goods Competition

Zhuoqiong Chen (), Christopher Stanton () and Catherine Thomas ()
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Zhuoqiong Chen: Harbin Institute of Technology, Shenzhen, Guangdong Province 518055, China
Christopher Stanton: Harvard University, Cambridge, Massachusetts 02138; National Bureau of Economic Research, Cambridge, Massachusetts 02138; Centre for Economic and Policy Research, 75007 Paris, France
Catherine Thomas: Centre for Economic and Policy Research, 75007 Paris, France; London School of Economics and Political Science, Houghton Street, London WC2A 2AE, United Kingdom; Centre for Economic Performance, London WC2A 2AE, United Kingdom

Management Science, 2024, vol. 70, issue 6, 3923-3950

Abstract: Trialing an experience good allows consumers to learn their value for the sampled good and also informs beliefs about their value for similar products. These demand-side information spillovers across products create a relatively well-informed group of potential future consumers for rival firms. When both switching consumers and repeat buyers are profitable, firms face reduced incentives to set a low initial price to attract inexperienced consumers. Switchers and repeat buyers are more likely to be profitable in new product categories that build on major innovations and when firms can price discriminate based on purchasing history. We suggest that competing products and services arising from new innovations often have demand-side information spillovers from any product trial and are, hence, settings where competing firms can make overall profits even when selling products that consumers perceive to be indistinguishable prior to initial trial.

Keywords: experience goods; duopoly; behavior based price discrimination; product differentiation; information spillovers (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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