Experience Goods, Expectations and Pricing*

This paper studies a peculiar problem involved in the pricing of an "experience good" whose value is not known to consumers until it is actually consumed. It shows that the producer faces an exceptional problem that does not arise in the framework of a "search good." Noticing a link between markets in earlier and later periods due to the expectational problem, the present paper analyzes equilibrium price patterns when a producer can precommit to a certain future price path and when he cannot. It also discusses social welfare implications. Copyright 1992 by The Economic Society of Australia.