Discussion Paper Details

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Title: Dynamic Monopoly Pricing and Herding

Author(s): Subir Bose, Gerhard O Orosel, Marco Ottaviani and Lise Vesterlund

Publication Date: April 2005

Keyword(s): herd behaviour, informational cascade, monopoly, public information and social learning

Programme Area(s): Industrial Organization

Abstract: 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.

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Bibliographic Reference

Bose, S, Orosel, G, Ottaviani, M and Vesterlund, L. 2005. 'Dynamic Monopoly Pricing and Herding'. London, Centre for Economic Policy Research.