Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, October 20, 2020

Information Spillovers in Experience Goods Competition

Information Spillovers in Experience Goods Competition

 

Zhuoqiong (Charlie) Chen

Harbin Institute of Technology - Shenzhen Graduate School

Christopher Stanton

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

Catherine Thomas

London School of Economics & Political Science (LSE)

Abstract

When experience goods compete, consuming one product can be informative about value for similar untried products. We study duopoly competition in markets that have this feature and where firms can price discriminate between consumers based on purchasing history. Price dynamics, firm profits, and consumer surplus depend on how information spillovers shape demand from the consumers who have trialed the rival product-the potential switchers. Rather than competing intensely in the first period for all future profits, firms compete for the difference in profits between repeat and switching consumers. Demand-side information spillovers offer an explanation of how competing firms in new product markets can be profitable in all periods even when selling ex ante homogeneous products.

https://lawprofessors.typepad.com/antitrustprof_blog/2020/10/information-spillovers-in-experience-goods-competition.html

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