Price and quality cycles for experience goods

Douglas Gale, Robert W. Rosenthal

    Research output: Contribution to journalArticle

    Abstract

    We explore a dynamic, competitive model for experience goods and study an equilibrium for it in which firms plan initially to produce high quality at low price, then high quality at high price, then low quality at high price. Each consumer is aware that all firms eventually intend to run down their reputations at customers' expense, yet he rationally chooses to wait for direct evidence that the firm to which he is attached has already entered into the exploitative phase.

    Original languageEnglish (US)
    Pages (from-to)590-607
    Number of pages18
    JournalRAND Journal of Economics
    Volume25
    Issue number4
    DOIs
    StatePublished - 1994

    ASJC Scopus subject areas

    • Economics and Econometrics

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