Signaling Quality in the Presence of Observational Learning

Nicolás Figueroa () and Carla Guadalupi
Additional contact information
Nicolás Figueroa: Pontificia Universidad Católica de Chile

Review of Industrial Organization, 2020, vol. 56, issue 3, No 5, 515-534

Abstract: Abstract We study the optimal pricing strategy for a privately informed monopolist in the presence of observational learning. Early adopters learn quality before purchasing the product. Late adopters learn quality from first-period price and early adopters’ purchase decisions. Prices generate revenues, signal quality, and determine information transmission through observational learning. Separation may occur through either high or low prices, depending on the elasticity of early adopters’ demand. When demand for good-quality products is less elastic, high prices are less costly for high-type firms due to static and dynamic effects. High-type firms are marginally less affected by high prices, since they lose fewer consumers. Moreover, early sales at higher prices carry good news about quality to late adopters. The opposite occurs when the demand for good-quality products is more elastic.

Keywords: Early adopters; Monopoly; Observational learning; Pricing strategy; Signaling (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11151-019-09728-z Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:revind:v:56:y:2020:i:3:d:10.1007_s11151-019-09728-z

Ordering information: This journal article can be ordered from
http://www.springer. ... on/journal/11151/PS2

DOI: 10.1007/s11151-019-09728-z

Access Statistics for this article

Review of Industrial Organization is currently edited by L.J. White

More articles in Review of Industrial Organization from Springer, The Industrial Organization Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().