AJAE Appendix: Willingness to Pay Versus Expected Consumption Value in Vickrey Auctions for New Experience Goods

Present value

In the calculations of the present value of the future consumer surplus from the given product
class, we used the sum of an infinite geometric row starting t periods from now, At.

t=0

1 + r R               R

------= R + A, = R +-----+ A₇
r              ¹         1 + r ²

∞ P

A - _l.

t=2 1 + r

Transforming F π,r,a,p_i,p₂

The expected payoff of trying the new brand in the market, F π,r,a,p-_x,p₂ , is the expected
net value of trying the new brand, π v₂-a-p₂ + v_x-p_i Ir + l-π v₂+a-p₂  1 + r /r,

minus the net value of continuing to purchase the incumbent brand, v_i-p_l 1 +r Ir.

F π, r, a, p_i, p₂ can also be expressed as the value of buying a high quality new brand
instead of the incumbent brand, from this period on multiplied by the probability that the new
brand is of high quality 1-π v₂+a-p₂- v₁-∕>₁   1 + r /r, minus the value of buying the

incumbent brand instead of the new brand if the new brand is of low
quality v_i- p_l- v₂-a - p₂ /(1 + r), multiplied by the probability that the new brand is of
low quality, π.

+ l-π v₂+a-p₂ 1 + r /r- v₁ -p_λ 1 + r /r

+ l-π v₂+a-p₂ 1 + r Ir- l-π + π v_x-p_x 1 + r /r
.

v_x-p_x Ir + ∖-π v₂+a-p₂ - v_x-p_x 1 + r /r
∖-π v₂+a-p₂ - v_x-p_x 1 + r Ir

F ∙ =π

v₂-a- p₂ +

v_i-Pi Ir

(A2)

v₂ - a - p₂ +

v₂ - a - p₂ +

v₂-a- p₂-

V₁-Pi /r

1- 1 + r

V1-_jP1 +