Browse or Experience
61 Pages Posted: 13 Nov 2020 Last revised: 6 Feb 2022
Date Written: February 1, 2022
Consumers gain information about the value of a product both prior to purchase and when owning a product. We consider a model where both these types of gaining information are possible. The information gained when owning the product may affect future product purchases. We characterize when the consumer chooses to purchase the product if the consumer does not own it, the expected interval of time between purchases, and the expected number of product purchases over time. We find that, keeping product duration fixed, the optimal fixed price is independent of the initial product valuation if that valuation is sufficiently low such that a consumer not owning the product does not purchase it immediately, and characterize how the price charged affects the consumer information gathering strategy. We also find that an increase in the information gained while using the product leads to an earlier purchase, but less frequent repurchases thereafter. On the other hand, an increase in the information gained prior to purchases leads to later purchases, but more frequent repurchases thereafter. When the firm can also choose product duration and there are no costs of production, we find that the firm chooses an expected production duration that is infinitely small, and charges a flow price for the consumer to use the product. We also characterize how the extent of learning when owning and when not owning the product, the duration of the product, and the discount rate affect the optimal consumer and firm strategies.
Keywords: Repeated Purchases, Evolving Preferences, Information Acquisition, Consumer Search, Durable Goods, Rental Pricing
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