Learning and Strategic Pricing

Abstract

The authors consider a single consumer buying a stream of goods from different sellers over time. The true value of each seller's product is initially unknown. Additional information is obtained by experimentation. For exogenous prices, this is a multiarmed bandit problem. The innovation here is to endogenize the cost of experimentation by allowing for price competition between the sellers. Prices determine the intertemporal costs and benefits of learning for buyer and sellers. All Markov perfect equilibria are efficient. Prices below marginal cost sustain experimentation. Intertemporal exchange of the gains of learning is necessary to support efficient experimentation. Copyright 1996 by The Econometric Society.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 238 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.