Information spillovers in experience goods competition

Chen, Zhuoqiong, Stanton, Christopher and Thomas, Catherine ORCID: 0000-0002-7783-9758 (2024) Information spillovers in experience goods competition. Management Science, 70 (6). 3923 - 3950. ISSN 0025-1909

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Abstract

Trialing an experience good allows consumers to learn their value for the sampled good and also informs beliefs about their value for similar products. These demand-side information spillovers across products create a relatively well-informed group of potential future consumers for rival firms. When both switching consumers and repeat buyers are profitable, firms face reduced incentives to set a low initial price to attract inexperienced consumers. Switchers and repeat buyers are more likely to be profitable in new product categories that build on major innovations and when firms can price discriminate based on purchasing history. We suggest that competing products and services arising from new innovations often have demand-side information spillovers from any product trial and are, hence, settings where competing firms can make overall profits even when selling products that consumers perceive to be indistinguishable prior to initial trial.

Item Type:	Article
Official URL:	https://pubsonline.informs.org/journal/mnsc
Additional Information:	© 2023 INFORMS
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Date Deposited:	17 Nov 2023 17:48
Last Modified:	16 Nov 2024 03:30
URI:	http://eprints.lse.ac.uk/id/eprint/120790

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