Menu Pricing and Learning
نویسنده
چکیده
We address the question of designing dynamic menus to sell experience goods. A dynamic menu consists of a set of price-quantity pairs in each period. The quality of the product is initially unknown, and more information is generated through experimentation. The amount of information in the market is increasing in the total quantity sold in each period, and the rm can control the information ow to the market by adjusting the level of sales. We derive the optimal menu as a function of consumers beliefs about product quality, and characterize the changes in prices and quantities resulting from information di¤usion and its e¤ects on beliefs. The equilibrium menu prices are the result of a dynamic trade-o¤ between immediate gains from trade, information production, and information rents. The rm initially charges lower prices, in order to increase sales above the static optimum, sacri cing short-term gains in order to invest in information. As the market obtains more information, the rm gradually shifts to a policy designed to extract revenue from high-valuation buyers. This policy may eventually exclude low-valuation buyers from the market, even if the products underlying quality is in fact high. Keywords: Nonlinear pricing, menus of contracts, experience goods, experimentation, Bayesian learning. J.E.L. Classification: D42, D82, D83, L12 Department of Economics, Yale University, New Haven CT 06520-8268. alessandro:bonatti@yale:edu. I am indebted to my advisor, Dirk Bergemann, for his invaluable help and encouragement throughout this project. I also wish to thank Johannes Hörner and Ben Polak for many helpful discussions. This paper bene ted from comments from Rossella Argenziano, Eduardo Faingold, Dino Gerardi, Sven Rady, Maher Said, Larry Samuelson, Jiwoong Shin, K. Sudhir, as well as participants at various seminars and conferences. All errors, of course, are my own. This work was generously supported by a Cowles Foundation Carl A. Anderson Fellowship and a Yale University Leylan Fellowship in the Social Sciences.
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