Datta, Bipasa orcid.org/0000-0002-8109-0786 and Fraser, Clive D (2017) The Company You Keep:Qualitative Uncertainty in Providing a Club Good. Journal of Public Economic Theory. pp. 763-788. ISSN 1097-3923
Abstract
Clubs are typically experience goods. Potential members cannot ascertain precisely beforehand their quality (dependent endogenously on the club's facility investment and number of users, itself dependent on its prices). Members with unsatisfactory initial experiences discontinue visits. We show that a monopoly profit maximizer never offers a free trial period for such goods. For quality functions homogeneous of degree of at least minus one, a welfare maximizer, motivated by distributional concerns to mitigate disappointed consumers' losses, always does. We demonstrate the robustness of this finding by showing that (i) without qualitative uncertainty (thus, no disappointed customers), neither welfarist nor monopolist offers free trials; and (ii) if the planner pursues an objective mixing welfare maximization with profit maximization, the likelihood of free trials increases with the weight put on welfare maximization. Regarding club quality and usage, the monopolist provides a socially excessive level of quality to repeat buyers when the quality function is homogeneous of degree zero. With nonhomogeneous quality functions, the monopolist permits too little club usage; quality may or may not be socially excessive.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2017 Wiley Periodicals, Inc. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > Economics and Related Studies (York) |
Depositing User: | Pure (York) |
Date Deposited: | 05 Apr 2017 09:00 |
Last Modified: | 16 Oct 2024 13:34 |
Published Version: | https://doi.org/10.1111/jpet.12244 |
Status: | Published |
Refereed: | Yes |
Identification Number: | 10.1111/jpet.12244 |
Related URLs: | |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:114590 |
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