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Bayesian Learning in Markets with Common Value

29 Pages Posted: 26 Sep 2016 Last revised: 5 Mar 2017

Itai Arieli

Technion-Israel Institute of Technology

Moran Koren

Technion-Israel Institute of Technology - The William Davidson Faculty of Industrial Engineering & Management

Rann Smorodinsky

Technion-Israel Institute of Technology - The William Davidson Faculty of Industrial Engineering & Management

Date Written: January 19, 2017

Abstract

Two firms produce substitute goods with unknown quality. At each stage the firms set prices and a consumer with private information and unit demand buys from one of the firms. Both firms and consumers see the entire history of prices and purchases. Will such markets aggregate information? Will the superior firm necessarily prevail? We adapt the classical social learning model by introducing strategic dynamic pricing. We provide necessary and sufficient conditions for learning. In contrast to previous results, learning can occur when signals are bounded. This happens when signals exhibit the newly introduced vanishing likelihood property.

JEL Classification: D43, D83, L13

Suggested Citation

Arieli, Itai and Koren, Moran and Smorodinsky, Rann, Bayesian Learning in Markets with Common Value (January 19, 2017). Available at SSRN: https://ssrn.com/abstract=2843112 or http://dx.doi.org/10.2139/ssrn.2843112

Itai Arieli

Technion-Israel Institute of Technology ( email )

Technion City
Haifa 32000, Haifa 32000
Israel

Moran Koren (Contact Author)

Technion-Israel Institute of Technology - The William Davidson Faculty of Industrial Engineering & Management ( email )

Haifa 32000
Israel

Rann Smorodinsky

Technion-Israel Institute of Technology - The William Davidson Faculty of Industrial Engineering & Management ( email )

Haifa 32000
Israel

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