The Optimal Choice of Pre-Launch Reviewer

David Gill and Daniel Sgroi

No 562, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We develop a framework in which: (i) a firm can have a new product tested publicly before launch; and (ii) tests vary in toughness, holding expertise fixed. Price flexibility boosts the strong positive impact on consumer beliefs of passing a tough test and mitigates the strong negative impact of failing a soft test. As a result, profits are convex in toughness: the firm selects either the toughest or softest test available. The toughest test is optimal when consumers start with an unfavorable prior and receive sufficiently uninformative private signals (an "innovative" product); the softest test is optimal when signals are sufficiently informative.

Keywords: Tests; reviewers; certification; Bayesian learning; information transmissions; marketing; product launch; bias; tough test; soft test (search for similar items in EconPapers)
JEL-codes: D82 D83 L15 (search for similar items in EconPapers)
Date: 2011-08-01
New Economics Papers: this item is included in nep-cta
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Journal Article: The optimal choice of pre-launch reviewer (2012)
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