Industry Dynamics Under Uncertainty

Student: Bekzenteev Mark

Educational Programme: Economics (Bachelor)

Final Grade: 9

Year of Graduation: 2021

This article considers strategic experimentation of both firms and consumers in a dynamic environment with uncertainty on product qualities. Unlike many other studies, in the proposed model no agent has an option that provides a guaranteed payoff, thus creating incentives for experimentation towards each of the products available. Introducing consumer-side experimentation is needed to capture the specificity of consuming experience goods. Model outcomes highlight the differences between equilibrium and socially efficient experimentation paths, meaning that equilibrium is inefficient. This inefficiency arises because of competition effects. The presence of inefficiency suggests that policymakers need to be concerned with designing mechanisms to restore social optimum.

Full text (added May 1, 2021)

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