Work

Menu Pricing and Learning

Year: 2010

Type: article

Abstract: We analyze the design of dynamic menus to sell experience goods. The quality of the product is initially unknown, and the total quantity sold in each period determines the amount of information in the market. We characterize the optimum menu as a function of consumers' beliefs, and the dynamic adjustments resulting from the diffusion of information. The firm faces a dynamic trade-off between gains from trade, information production, and information rents. It initially charges lower prices, sacrificing short-term revenue to increase sales. As more information is revealed, prices increase, and low-valuation buyers are excluded, even when the product's quality is high. (JEL D42, D82, D83, L12)

Source: American Economic Journal Microeconomics

DOI: 10.1257/mic.3.3.124

Author: Alessandro Bonatti

Institution: Massachusetts Institute of Technology

Language: English

Topic: Consumer Market Behavior and Pricing

Subfield: Marketing

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W1978710281

FWCI: 3.801

Cites: 40

Cited by: 30

Related to: 10