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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/31405
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| Title: | Monopoly Pricing in the Presence of Social Learning |
| Authors: | Ifrach, Bar
Maglaras, Costis
Scarsini, Marco |
| Keywords: | learning, information aggregation, bounded rationality, pricing, optimal pricing. |
| Issue Date: | 20-Dec-2011 |
| Series/Report no.: | NET Institute Working Papers;11_11 |
| Abstract: | A monopolist oers a product to a market of consumers with heterogeneous
quality preferences. Although initially uninformed about the product
quality, they learn by observing past purchase decisions and reviews of
other consumers. Our goal is to analyze the social learning mechanism
and its eect on the seller's pricing decision. This analysis borrows
from the literature on social learning and on pricing and revenue
management. Consumers follow a naive decision rule and, under some
conditions, eventually learn the product's quality. Using mean-eld
approximation, the dynamics of this learning process are characterized
for markets with high demand intensity. The relationship between the
price and the speed of learning depends on the heterogeneity of quality
preferences. Two pricing strategies are studied: a static price and a
single price change. Properties of the optimal prices are derived.
Numerical experiments suggest that pricing strategies that account for
social learning may increase revenues considerably relative to
strategies that do not. |
| URI: | http://hdl.handle.net/2451/31405 |
| Appears in Collections: | NET Institute Working Papers Series
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Files in This Item:
| File |
Description |
Size | Format |
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| 11_11.pdf | NET Institute Working Paper 11_11 | 812.31 kB | Adobe PDF | View/Open |
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