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American Economic Journal: Microeconomics: Vol. 3 No. 3 (August 2011)

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Menu Pricing and Learning

Article Citation

Bonatti, Alessandro. 2011. "Menu Pricing and Learning." American Economic Journal: Microeconomics, 3(3): 124-63.

DOI: 10.1257/mic.3.3.124

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)

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Authors

Bonatti, Alessandro (MIT)

JEL Classifications

D42: Market Structure and Pricing: Monopoly
D82: Asymmetric and Private Information
D83: Search; Learning; Information and Knowledge; Communication; Belief
L12: Monopoly; Monopolization Strategies

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