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Dynamic monopoly pricing and herding
Author(s) -
Bose Subir,
Orosel Gerhard,
Ottaviani Marco,
Vesterlund Lise
Publication year - 2006
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2006.tb00063.x
Subject(s) - herding , monopoly , incentive , microeconomics , price discrimination , economics , subsidy , dynamic pricing , business , market economy , forestry , geography
We study dynamic pricing by a monopolist selling to buyers who learn from each other's purchases. The price posted in each period serves to extract rent from the current buyer, as well as to control the amount of information transmitted to future buyers. As information increases future rent extraction, the monopolist has an incentive to subsidize learning by charging a price that results in information revelation. Nonetheless, in the long run, the monopolist generally induces herding by either selling to all buyers or exiting the market.