Exogenous Learning, Seller-Induced Learning, and Marketing of Durable Goods

When learning of product characteristics takes some time, a firm introducing a new durable faces the trade-off between releasing early to an uninformed market and deferring release to a better-informed market. In a two-period monopoly, we examine the strategic interaction between exogenous learning (EL) and seller-induced learning (SIL) and the firm's product release and pricing strategies. The familiar, direct effect of strong learning is to facilitate a higher price for informed customers. We point out its indirect effect of inducing a higher period 1 price for uninformed customers (by lowering their expected utility from learning). These two effects underlie three major results. First, a strong learning intensity does not always imply deferred release. Surprisingly, for medium unit costs, the firm releases late (early) when learning intensity is weak (strong). Second, SIL facilitates different product release strategies, depending on the unit cost level. Potential SIL investment facilitates early release for low or medium unit costs, but may facilitate deferred release for high unit costs. Lastly, when customers have heterogeneous prior valuation, the high-end customers may buy early at a lower price and the low-end customers may buy later at a higher price, contrary to the usual skim pricing with informed customers. This paper was accepted by Preyas Desai, marketing.