Information Spillovers in Experience Goods Competition

61 Pages Posted: 12 Sep 2020

See all articles by Zhuoqiong (Charlie) Chen

Zhuoqiong (Charlie) Chen

Harbin Institute of Technology - Shenzhen Graduate School

Christopher Stanton

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

Catherine Thomas

London School of Economics & Political Science (LSE)

Date Written: September 2020

Abstract

When experience goods compete, consuming one product can be informative about value for similar untried products. We study duopoly competition in markets that have this feature and where firms can price discriminate between consumers based on purchasing history. Price dynamics, firm profits, and consumer surplus depend on how information spillovers shape demand from the consumers who have trialed the rival product-the potential switchers. Rather than competing intensely in the first period for all future profits, firms compete for the difference in profits between repeat and switching consumers. Demand-side information spillovers offer an explanation of how competing firms in new product markets can be profitable in all periods even when selling ex ante homogeneous products.

Keywords: Behavior based price discrimination, Duopoly, Experience Goods, product differentiation

JEL Classification: D21, D43, D83, L11, L13, L15

Suggested Citation

Chen, Zhuoqiong and Stanton, Christopher and Thomas, Catherine, Information Spillovers in Experience Goods Competition (September 2020). CEPR Discussion Paper No. DP15255, Available at SSRN: https://ssrn.com/abstract=3688210

Zhuoqiong Chen (Contact Author)

Harbin Institute of Technology - Shenzhen Graduate School ( email )

Room 301A, Building B, HITSZ campus
University Town of Shenzhen
Shenzhen, Guangdong 518055
China

Christopher Stanton

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Catherine Thomas

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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