SMU SOE Seminar (November 3, 2022): Learning by Consuming: Optimal Pricing with Endogenous Information Provision

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ABSTRACT We study the revenue-maximizing mechanism when a buyer’s value evolves because of learning-by-consuming. The buyer chooses the initial consumption based on his rough valuation. Consuming more induces a finer valuation estimate, after which he determines the final consumption. The optimum is a try-and-decide contract. In equilibrium, a higher first-stage valuation buyer chooses more initial consumption and enjoys a lower second-stage per-unit price. Methodologically, we address the difficulty that without the single-crossing condition, monotonicity plus envelope condition is insufficient for incentive compatibility. Our results help to understand contracts with learning features; e.g., leasing contracts for experience goods and trial course sessions. Keywords: Adverse selection, Dynamic mechanism design, Endogenous type distribution, Information provision, Rotation order, Experience good. JEL Codes: D44, D82, D86 Click here to view the CV. Click here to view the paper.
		PRESENTER Wei He The Chinese University of Hong Kong
		RESEARCH FIELDS Microeconomic Theory Game Theory Mechanism Design
		DATE: 3 November 2022 (Thursday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903