Entry and experimentation in oligopolistic markets for experience goods

Markteintritt und Experimentation in oligopolistischen Märkten für Erfahrungsgüter

Daniel Krähmer

No FS IV 02-13, Discussion Papers, Research Unit: Market Processes and Governance from WZB Berlin Social Science Center

Abstract: We investigate a two-period Bertrand market in which one seller introduces a new product of uncertain quality. The new product competes with an alternative good of known quality. Ex ante neither sellers nor consumers know the value of the new product. While consumers can learn their valuation by actual consumption (experimentation), sellers cannot observe experimentation outcomes. Thus, asymmetric information arises if the buyer experiments. As a result, the equilibrium is inefficient, and too little entry occurs.

Keywords: Entry; experimentation; asymmetric information; bandit problem; Bertrand competition (search for similar items in EconPapers)
JEL-codes: D82 D83 L13 L15 (search for similar items in EconPapers)
Date: 2002
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