TY - JOUR
T1 - Experimentation and Competition
AU - Fishman, Arthur
AU - Rob, Rafael
N1 - Funding Information:
* Financial Support from the Israel Science Foundation is greatfully acknowledged.
PY - 1998/2
Y1 - 1998/2
N2 - This paper examines the effect of competition on firms' efforts to experiment and learn about market demand. Consumers are assumed to know prices only at sellers they have actually visited, but must bear search costs to find the prices of other sellers. Under these conditions we show that firms' incentives to experiment are diluted by comparison with the monopoly case and that this effect is stronger the smaller the search cost. The learning environment we portray gives rise to several time paths which have been empirically documented, including penetration pricing, cream-skimming, and cyclical pricing.Journal of Economic LiteratureClassification Numbers: C73, D43, D83.
AB - This paper examines the effect of competition on firms' efforts to experiment and learn about market demand. Consumers are assumed to know prices only at sellers they have actually visited, but must bear search costs to find the prices of other sellers. Under these conditions we show that firms' incentives to experiment are diluted by comparison with the monopoly case and that this effect is stronger the smaller the search cost. The learning environment we portray gives rise to several time paths which have been empirically documented, including penetration pricing, cream-skimming, and cyclical pricing.Journal of Economic LiteratureClassification Numbers: C73, D43, D83.
UR - http://www.scopus.com/inward/record.url?scp=0000145304&partnerID=8YFLogxK
U2 - 10.1006/jeth.1997.2365
DO - 10.1006/jeth.1997.2365
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AN - SCOPUS:0000145304
SN - 0022-0531
VL - 78
SP - 299
EP - 320
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 2
ER -