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Shopping for Information: Implications of Consumer Learning for Optimal Pricing and Product Design

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  • Marilyn Pease

Abstract

I study a seller's pricing problem where consumers perform costly product research about value before purchase. They buy the product when sufficiently optimistic about value and cease research when sufficiently pessimistic. I find that the seller encourages product research when prior belief about value is high, even though he could sell immediately for a high price. The prior affects both expected value and how additional information changes consumers' beliefs. I show that an increase in research cost affects equilibrium price nonmonotonically. Finally, when the seller chooses price and product value dispersion, the optimal level of dispersion need not be extremal.

Suggested Citation

  • Marilyn Pease, 2023. "Shopping for Information: Implications of Consumer Learning for Optimal Pricing and Product Design," Journal of Industrial Economics, Wiley Blackwell, vol. 71(3), pages 883-923, September.
    • Handle: RePEc:bla:jindec:v:71:y:2023:i:3:p:883-923
    DOI: 10.1111/joie.12333
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    References listed on IDEAS

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    1. Dina Mayzlin & Jiwoong Shin, 2011. "Uninformative Advertising as an Invitation to Search," Marketing Science, INFORMS, vol. 30(4), pages 666-685, July.
    2. Yiangos Papanastasiou & Nicos Savva, 2017. "Dynamic Pricing in the Presence of Social Learning and Strategic Consumers," Management Science, INFORMS, vol. 63(4), pages 919-939, April.
    3. Lang, Ruitian, 2019. "Try before you buy: A theory of dynamic information acquisition," Journal of Economic Theory, Elsevier, vol. 183(C), pages 1057-1093.
    4. Fernando Branco & Monic Sun & J. Miguel Villas-Boas, 2016. "Too Much Information? Information Provision and Search Costs," Marketing Science, INFORMS, vol. 35(4), pages 605-618, July.
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