| Abstract: | When a new product is introduced, consumers are typically ex ante uncertain about how much they are willing to pay for it. To resolve this uncertainty before purchasing, they may engage in a costly evaluation to learn their product valuation. This study investigates a firm’s strategic intertemporal pricing with regard to whether to induce or prevent the consumers to evaluate by taking into consideration their heterogeneous evaluation costs. Specifically, we propose a two-period model where a monopolistic firm launches its product at the beginning of the first period and sells it over two periods. In each period, the firm determines whether to induce or prevent evaluation by setting a price for this period that maximizes its expected profits. All consumers arrive at the outset and after observing the price in the first period, they strategically make trade-offs between the expected utility from evaluation versus that from purchasing with no information. While consumers differ in their search costs, they may act in different ways. If some consumers discover their true valuations in the first period through evaluation or purchase, they will reveal their information to the market. As a result, the consumers who have neither evaluated nor purchased in the first period may learn from the early adopters and make their purchase decisions accordingly in the second period. We investigate how the buyers’ heterogeneity in evaluation cost influence the firm’s intertemporal pricing strategies. |
| Date: | 17 August 2016 |
| Time: | 10:30am - 11:00am |
| Speaker: |
Ms Puyang Xiaojuan PhD Student Department of Management Sciences City University of Hong Kong |
| Venue: | Room B5-122, 5/F, Academic 1, Blue Zone, City University of Hong Kong |
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