FINAL-DattaB-CFraser_Clubs Uncertainty_JPET-16-00311.R1.pdf (295.9 kB)
Download file

The Company You Keep: Qualitative Uncertainty in Providing a Club Good.

Download (295.9 kB)
journal contribution
posted on 17.03.2017, 14:48 by Bipasa Datta, Clive D. Fraser
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.

History

Citation

Journal of Public Economic Theory, 2017, pp. 1-27

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCES, ARTS AND HUMANITIES/Department of Economics

Version

AM (Accepted Manuscript)

Published in

Journal of Public Economic Theory

Publisher

Wiley for Association for Public Economic Theory

issn

1097-3923

eissn

1467-9779

Acceptance date

05/02/2017

Copyright date

2017

Available date

27/03/2018

Publisher version

http://onlinelibrary.wiley.com/doi/10.1111/jpet.12244/abstract

Notes

The file associated with this record is under embargo until 12 months after publication, in accordance with the publisher's self-archiving policy. The full text may be available through the publisher links provided above.

Language

en

Usage metrics

Categories

Keywords

Exports