Dynamic Pricing with Evaluation Cost

We consider a firm selling a new product to a market wherein customers are uncertain about their valuation of the product. This uncertainty can be resolved through a costly search for product information. The market consists of two types of consumers who differ in their attitudes towards risk, and thus the incentives which motivate them to engage in information search vary. There are two periods over which the firm can dynamically adjust the price to sell the product. Based on the price offered in each period, the customers choose either to search, to buy, or not to buy. We examine the optimal intertemporal pricing strategy under such settings and provide insights into how the firm should induce the customers of each type to search over time.