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  • 2021
  • Working Paper

Information Spillovers in Experience Goods Competition

By: Zhuoqiong Charlie Chen, Christopher Stanton and Catherine Thomas
  • Format:Print
  • | Language:English
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Abstract

When experience goods compete, consuming one product can be informative about value for similar untried products. We study a two-period model of duopoly competition in markets that have this feature and where firms can price discriminate between consumers based on purchasing history. Price dynamics, firm profits, and consumer surplus depend on how information spillovers shape demand from the consumers who have trialed the rival product—the potential switchers. In the first period, rather than competing intensely for all future profits, firms compete only for the difference in future profits between repeat and switching consumers. Demand-side information spillovers offer an explanation of how competing firms in new product markets can be profitable in all periods even when selling products that are indistinguishable ex ante.

Keywords

Experience Goods; Competition; Information; Valuation; Consumer Behavior; Demand and Consumers; Price

Citation

Chen, Zhuoqiong Charlie, Christopher Stanton, and Catherine Thomas. "Information Spillovers in Experience Goods Competition." NBER Working Paper Series, No. 28584, March 2021. (Minor Revise and Resubmit at Management Science.)
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About The Author

Christopher T. Stanton

Entrepreneurial Management
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