The Strategy of One Firm Offering a New Product with Willingness to Pay Elicited in the Lab



This study analyzes the strategy of one firm offering a new product with willingness to pay (WTP) for the usual and new products elicited in the lab. By using WTP from an experiment, surpluses for consumers choosing between the usual and new products are inferred and lead to an estimated demand for the new product. From this demand, the author shows how to estimate the ex ante price of the new product along with the ex ante level of advertising selected by one firm for informing consumers. The socially optimal level of advertising maximizing the welfare is also determined. The previous methodology is applied to two experiments with food. For a same-advertising formula regarding information diffusion to consumers, the estimated levels of advertising highly differ between these two experiments because of different WTP variations linked to the new product.