Tuomas Laiho: Social learning and monopoly pricing with forward looking buyers
Job talk. Tuomas Laiho is a PhD candidate at Aalto University. He will present the paper "Social learning and monopoly pricing with forward looking buyers", written jointly with Julia Salmi
Tuomas Laiho. Photo: Personal webpage
We study monopoly pricing in a dynamic model of social learning. The quality of the product is uncertain and is revealed through consumers’ experiences. Heterogeneous buyers arrive to the market over time and have the option of delaying their purchases. The key question for the monopolist is whether and when to sell to low valuation buyers: selling early facilitates learning but postponing enables sales to take place when the market participants are better informed. We solve the monopolist’s problem under commitment and construct Markov perfect equilibria. We show that under commitment the monopolist never holds low price sales to accumulated buyers but may keep a lower price in the beginning to generate learning. In contrast, we construct equilibria in which the monopolist first accumulates and then sells to low valuation buyers. Because commitment power can improve the efficiency of learning, we show that the commitment solution can provide more welfare than the equilibria. The effect of commitment power on learning efficiency is ambiguous, however, and depends on the the learning environment.