CFDP 1463R

Monopoly Pricing of Experience Goods


Publication Date: June 2004

Revision Date: May 2005

Pages: 33


We develop a dynamic model of experience goods pricing with independent private valuations. We show that the optimal paths of sales and prices can be described in terms of a simple dichotomy. In a mass market, prices are declining over time. In a niche market, the optimal prices are initially low followed by higher prices that extract surplus from the buyers with a high willingness to pay. We consider extensions of the model to integrate elements of social rather than private learning and turnover among buyers.


Monopoly, dynamic pricing, learning, experience goods, continuous time, Markov perfect equilibrium

JEL Classification Codes:  D81, D83

See CFP: 1175