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Dynamic Pricing of New Experience Goods

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  • Dirk Bergemann
  • Juuso Välimäki

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.

Suggested Citation

  • Dirk Bergemann & Juuso Välimäki, 2006. "Dynamic Pricing of New Experience Goods," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 713-743, August.
    • Handle: RePEc:ucp:jpolec:v:114:y:2006:i:4:p:713-743
    DOI: 10.1086/506923
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    References listed on IDEAS

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