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Robust monopoly pricing

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  • Bergemann, Dirk
  • Schlag, Karl

Abstract

We consider a robust version of the classic problem of optimal monopoly pricing with incomplete information. In the robust version, the seller faces model uncertainty and only knows that the true demand distribution is in the neighborhood of a given model distribution. We characterize the pricing policies under two distinct decision criteria with multiple priors: (i) maximin utility and (ii) minimax regret. The equilibrium price under either criterion is lower then in the absence of uncertainty. The concern for robustness leads the seller to concede a larger information rent to all buyers with values below the optimal price without uncertainty.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 6 ()
Pages: 2527-2543

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:6:p:2527-2543

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Monopoly; Robustness; Multiple priors; Maximin utility; Minimax regret; Robust mechanism design;

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Citations

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Cited by:
  1. Handel, Benjamin R. & Misra, Kanishka & Roberts, James W., 2013. "Robust firm pricing with panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 174(2), pages 165-185.
  2. Kristóf Madarász & Andrea Prat, 2010. "Screening with an approximate type space," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 35056, London School of Economics and Political Science, LSE Library.
  3. Ronald Stauber, 2013. "A Framework for Robustness to Ambiguity of Higher-Order Beliefs," ANU Working Papers in Economics and Econometrics 2013-602, Australian National University, College of Business and Economics, School of Economics.
  4. Andrea Gallice, 2006. "Predicting one Shot Play in 2x2 Games Using Beliefs Based on Minimax Regret," Working Papers 2006.31, Fondazione Eni Enrico Mattei.
  5. Ludovic Renou & Karl Schlag, 2008. "Minimax regret and strategic uncertainty," Economics Working Papers 1087, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Paul Viefers & Philipp Strack, 2014. "Too Proud to Stop: Regret in Dynamic Decisions," Discussion Papers of DIW Berlin 1401, DIW Berlin, German Institute for Economic Research.
  7. Król, Michał, 2012. "Product differentiation decisions under ambiguous consumer demand and pessimistic expectations," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 30(6), pages 593-604.
  8. Alfredo Di Tillio & Nenad Kos & Matthias Messner, 2012. "The Design of Ambiguous Mechanisms," Working Papers 446, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  9. Stoye, Jörg, 2012. "Minimax regret treatment choice with covariates or with limited validity of experiments," Journal of Econometrics, Elsevier, Elsevier, vol. 166(1), pages 138-156.
  10. Dirk Bergemann & Karl H Schlag, 2007. "Pricing without Priors," Levine's Bibliography 122247000000001557, UCLA Department of Economics.
  11. Ronald Stauber, 2014. "A framework for robustness to ambiguity of higher-order beliefs," International Journal of Game Theory, Springer, Springer, vol. 43(3), pages 525-550, August.
  12. Martin Szydlowski, 2012. "Ambiguity in Dynamic Contracts," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1543, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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