Information spillovers in experience goods competition

Zhuoqiong Chen, Christopher Stanton and Catherine Thomas

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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; No. 71903046) and the “Shenzhen Peacock Program” (No. GA11409002). (search for similar items in EconPapers)
JEL-codes: J50 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2024-06-01
New Economics Papers: this item is included in nep-com, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Management Science, 1, June, 2024, 70(6), pp. 3923 - 3950. ISSN: 0025-1909

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