Seminar in Microeconomics - Joao Montez (University of Lausanne)

We study pricing and product line decisions of a seller introducing a new model when only a fraction of consumers is uninformed about the new product’s quality, which can be a significant or a mild improvement over its old model of known quality. When that fraction is low, in a separating equilibrium, the high-quality model is offered at the (full information) premium over the old model’s discounted price. When that fraction is intermediate, the old model is delisted, and the new model is sold at full information price or discounted. Finally, when that fraction is very high, the new model is offered at the (full information) premium over the old model, which is sold below its cost.