Monopoly Pricing of Experience Goods

Dirk Bergemann and Juuso Välimäki

No 1463R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We develop a dynamic model of experience goods pricing with independent private valuations. We show that the optimal paths of sales and prices can be described in terms of a simple dichotomy. In a mass market, prices are declining over time. In a niche market, the optimal prices are initially low followed by higher prices that extract surplus from the buyers with a high willingness to pay. We consider extensions of the model to integrate elements of social rather than private learning and turnover among buyers.

Keywords: Monopoly; dynamic pricing; learning; experience goods; continuous time; Markov perfect equilibrium (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2004-06, Revised 2005-05
New Economics Papers: this item is included in nep-com and nep-mic
Note: CFP 1175
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in Journal of Political Economy (2006), 114(4): 713-743

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