Identified consumers: an experiment on the informativeness of cross-demand price effects
Garcia-Gallego, A., Georgantzis, N. and Sabater-Grande, G. (2004) Identified consumers: an experiment on the informativeness of cross-demand price effects. Cuadernos de economia, 27. pp. 185-216. ISSN 1138-5758
Often, firms have no information on the specification of the true demand model they are faced with. It is, however, a well established fact that trial-and-error algorithms may be used by them in order to learn how to make optimal decisions. Using experimental methods, we identify a property of the information on past actions which helps the seller of two asymmetric demand substitutes to reach the optimal prices more precisely and faster. The property concerns the possibility of disaggregating changes in each product’s demand into client exit/entry and shift from one product to the other.