Discussion Paper
Learning and Strategic Pricing
We consider the situation where a single consumer buys a stream of goods from different sellers over time. The true value of each seller’s product to the buyer is initially unknown. Additional information can be gained only by experimentation. For exogenously given prices the buyer’s problem is a multi-armed bandit problem. The innovation in this paper is to endogenize the cost of experimentation to the consumer by allowing for price competition between the sellers.