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"Dynamic Pricing of New Experience Goods"

Publication Title: Dynamic Pricing of New Experience Goods
Author(s): Dirk Bergemann and Juuso Välimäki

Year: 2006
Published in: The Journal of Political Economy

Topic of the Publication: - Information Goods

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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