Social Learning and Dynamic Pricing of Durable Goods

We analyze the impacts of social learning (SL) on the dynamic pricing and consumer adoption of durable goods in a two-period monopoly. Consumers can make either early, uninformed purchases or late but potentially informed purchases as a result of social learning. Several results are derived. First, we identify the market conditions under which ex ante homogeneous consumers may choose to purchase at different times. Second, equilibrium adoption may demonstrate inertia (where all adopt late) or frenzy (where all adopt early). In particular, adoption inertia appears when SL intensity is reasonably high but may vanish when SL intensity exceeds a certain threshold. Third, firm profits and social welfare first weakly decrease in SL intensity and may then jump up by a lump-sum amount at the threshold SL intensity level mentioned above. Last, we show that the firm potentially benefits from informative advertising or investing to cultivate more social learning.