From doubt to devotion: trials and learning-based pricing

An informed seller designs a dynamic mechanism to sell an experience good. The seller has private information about the product match, which affects the buyer’s private consumption experience. The belief gap between both parties, coupled with the buyer’s learning, yields mechanisms providing the skeptical buyer with limited access to the product and an option to upgrade if the buyer is swayed by a good experience. Depending on the seller’s screening technology, this takes the form of free/discounted trials or tiered pricing, which are prevalent in digital markets. Unlike static environments, having consumer data can reduce sellers’ revenue in equilibrium.