Monopoly Pricing of Experience Goods
CFDP Revision Date
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.
Bergemann, Dirk and Välimäki, Juuso, "Monopoly Pricing of Experience Goods" (2004). Cowles Foundation Discussion Papers. 1740.