Abstract
This paper is an empirical examination of observational learning. Using data from an online market for music, I find that observational learning benefits consumers, producers of high-quality music, and the online platform. I also study the role of pricing as a friction to the learning pro- cess by comparing outcomes under demand-based pricing to counterfactual pricing schemes. I find that employing a fixed price (the industry standard) can hamper learning by reducing the incentive to experiment, resulting in less consumer surplus, but more expected revenue for the platform.
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