DP5003 Dynamic Monopoly Pricing and Herding
|Author(s):||Subir Bose, Gerhard O Orosel, Marco Ottaviani, Lise Vesterlund|
|Publication Date:||April 2005|
|Keyword(s):||herd behaviour, informational cascade, monopoly, public information, social learning|
|JEL(s):||D83, L12, L15|
|Programme Areas:||Industrial Organization|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5003|
This paper studies 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.