COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1463 Monopoly Pricing of Experience Goods Dirk Bergemann and Juuso Välimäki June 2004 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 |
