Browse or Experience

61 Pages Posted: 13 Nov 2020 Last revised: 15 Jun 2022

See all articles by Z. Eddie Ning

Z. Eddie Ning

University of British Columbia (UBC) - Sauder School of Business

J. Miguel Villas-Boas

University of California, Berkeley

Date Written: June 1, 2022

Abstract

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

Suggested Citation

Ning, Z. Eddie and Villas-Boas, J. Miguel, Browse or Experience (June 1, 2022). Available at SSRN: https://ssrn.com/abstract=3698399 or http://dx.doi.org/10.2139/ssrn.3698399

Z. Eddie Ning (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

J. Miguel Villas-Boas

University of California, Berkeley ( email )

Haas School of Business
Berkeley, CA 94720
United States
510-642-1250 (Phone)
510-643-1420 (Fax)

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