The Curse of Knowledge

The length of the time interval between two consecutive price o¤ers is called the monopolist s commitment period. As mentioned above, the rm is able to collect (imperfect) information about con- sumers willingness to pay for the good: The rm can never know for sure what is the consumer s exact willingness to pay for the good (i.e. [...] However, if a consumer makes her rst-time purchase in a given period n, the monopolist will label such customer as a vintage-n consumer, clustering her with other consumers who have chosen to buy the good for the rst time in 3 the same period (suggesting that their willingness to pay for the good is not too di¤erent, at least in comparison with the consumers who prefer to buy the good for the r [...] This decision depends not only on the consumers willingness to pay for the good and the current introductory price chosen by the monopolist but also by her expectation of next period s introductory price, as well as the price the consumer expects to face in the future as an old customer. [...] The rst scenario is when the monopolist cannot commit to anything in the future beyond the current period (during which the prices that are set at the beginning of the period remain in force). [...] We show that the size of the rst market segment (created in the initial period) is smaller, the shorter is the interval of commitment.