Monopoly Pricing of Experience Goods

34 Pages Posted: 13 Jul 2004

See all articles by Dirk Bergemann

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Juuso Valimaki

Helsinki School of Economics; University of Southampton - Division of Economics

Date Written: May 2005

Abstract

We develop a dynamic model of experience goods pricing with independent private valuations. We show that the optimal paths of sales and prices can be described in terms of a simple dichotomy. In a mass market, prices are declining over time. In a niche market, the optimal prices are initially low followed by higher prices that extract surplus from the buyers with a high willingness to pay. We consider extensions of the model to integrate elements of social rather than private learning and turnover among buyers.

Keywords: Monopoly, dynamic pricing, learning, experience goods, continuous time, Markov perfect equilibrium

JEL Classification: D81, D83

Suggested Citation

Bergemann, Dirk and Valimaki, Juuso, Monopoly Pricing of Experience Goods (May 2005). Cowles Foundation Discussion Paper No. 1463R. Available at SSRN: https://ssrn.com/abstract=564265

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Juuso Valimaki

Helsinki School of Economics ( email )

P.O. Box 21210
Helsinki 00100, 00101
Finland

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 23 8059 3263 (Phone)

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