PRICE AND QUALITY CYCLES FOR EXPERIENCE GOODS

We explore a dynamic, competitive model for experience goods and study an equilibrium for it in which firms plan initially to produce high q uality at low price, then high quality at high price, then low quality at high price. Each consumer is aware that all firms eventually inten d to run down their reputations at customers' expense, yet he rational ly chooses to wait for direct evidence that the firm to which he is at tached has already entered into the exploitative phase.