Heterogeneous learning in product markets

We study how the combination of market structure and the asymmetries in learn- ing technologies affects trade in a product market. In this market, a new product of unknown quality is introduced to challenge an existing product of known quality. We show that market efficiency is achieved both under monopoly and competition if buyers are symmetric in the amount of information they generate when they consume the new product. If buyers are instead asymmetric, only a monopolistic market in which the seller of the old product also sells the new one is efficient. We identify inefficiency as a learning externality that consumption of the new product by one buyer generates for the other buyers. The equilibrium inefficiency has two essential features: (i) efficiency for the top learners, that is, the threshold for starting to serve the best learners (i.e., to enter into a beta phase) remains the efficient one; and (ii) nonmonotonicity, that is, distortions are not monotone in the extent of the asymmetry. Finally, we explore our results’ robustness under different assumptions about the ability to price discriminate.https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3961223First author draf