Title

Monopoly Pricing of Experience Goods

Document Type

Discussion Paper

Publication Date

6-1-2004

CFDP Number

1463R

CFDP Revision Date

2005-05-01

CFDP Pages

33

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.

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