Abstract
It is normally assumed that, when firms launch a new product, they should first price it low and then price it high at a later stage. However, if consumers do not have well defined preferences and as a result their valuation of a new product is shaped by past experiences of prices, it may be better for firms to follow the opposite strategy. We run an individual choice experiment with a posted offer market setup, where different dynamic pricing strategies are implemented by computerised sellers. We find evidence of shaping effects: subjects shape their valuations based on past prices. This leads us to conclude that it may be more profitable for firms to first price high and then price low than otherwise thought. As a result, a reduction in prices following a new product inovation and a period of high prices may be a form of exercise of market power.