Working Paper: CEPR ID: DP5003
Authors: Subir Bose; Gerhard O. Orosel; Marco Ottaviani; Lise Vesterlund
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.
Keywords: Herd behaviour; Informational cascade; Monopoly; Public information; Social learning
JEL Codes: D83; L12; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monopolist's pricing strategy (D42) | Amount of information revealed to future buyers (L85) |
| Amount of information revealed to future buyers (L85) | Purchasing decisions of future buyers (D16) |
| Monopolist's pricing strategy (D42) | Learning process of future buyers (D16) |
| Monopolist's pricing strategy (D42) | Informational cascade (herding) or individual learning among buyers (D83) |
| Monopolist's pricing strategy (lower price) (D42) | Informational cascade (D83) |
| Monopolist's pricing strategy (higher price) (D42) | Exit cascade (Y60) |
| Monopolist's pricing strategy (revealing information) (D42) | Maximizes expected future profits (L21) |
| Learning from each other's purchases (D16) | Increases overall demand and potential profits (F61) |