Learning Deterrence vs. Learning Encouragement : Optimal Pricing and Return Policy

This paper studies the optimal selling mechanism when an uninformed buyer can sequentially and privately acquire costly information about his valuation of a product. The seller designs the mechanism to affect the buyer’s benefit from learning and thereby controls the learning process. Our main result shows that it is always sub-optimal to induce partial learning, and the optimal mechanism either encourages full learning or deters learning. Specifically, the seller optimally encourages full learning if the buyer is relatively uninformed and optimistic. Otherwise, the optimal mechanism prevents learning, which benefits both the buyer and the seller