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A note on pricing with risk aversion

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  • Colombo, Luca
  • Labrecciosa, Paola

Abstract

We consider the pricing problem of a risk-averse seller facing uncertain demand. Demand uncertainty stems from buyers’ valuations being privately observed. By imposing very mild restrictions on the distribution of buyers’ valuations (an increasing generalized failure rate distribution) and the Bernoulli utility function, we show that a risk-averse seller will unambiguously post a lower price than a risk-neutral counterpart.

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  • Colombo, Luca & Labrecciosa, Paola, 2012. "A note on pricing with risk aversion," European Journal of Operational Research, Elsevier, vol. 216(1), pages 252-254.
    • Handle: RePEc:eee:ejores:v:216:y:2012:i:1:p:252-254
    DOI: 10.1016/j.ejor.2011.07.027
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    2. Leonardos Stefanos & Melolidakis Costis, 2020. "On the Equilibrium Uniqueness in Cournot Competition with Demand Uncertainty," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 20(2), pages 1-6, June.
    3. Li, Xiang & Qi, Xiangtong, 2021. "On pricing and quality decisions with risk aversion," Omega, Elsevier, vol. 98(C).
    4. Stefanos Leonardos & Costis Melolidakis & Constandina Koki, 2022. "Monopoly pricing in vertical markets with demand uncertainty," Annals of Operations Research, Springer, vol. 315(2), pages 1291-1318, August.
    5. Li, Xiang & Qi, Xiangtong & Li, Yongjian, 2021. "On sales effort and pricing decisions under alternative risk criteria," European Journal of Operational Research, Elsevier, vol. 293(2), pages 603-614.
    6. Paulo Oliveira & Nuria Torrado, 2015. "On proportional reversed failure rate class," Statistical Papers, Springer, vol. 56(4), pages 999-1013, November.
    7. Oh, Sechan & Rhodes, James & Strong, Ray, 2016. "Impact of cost uncertainty on pricing decisions under risk aversion," European Journal of Operational Research, Elsevier, vol. 253(1), pages 144-153.

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