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The economics of posted prices in a concentrated market where demand is uncertain

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  • Mantell, Edmund H.

Abstract

This paper analyses the theory of the optimal output decision for a firm whose policy is to post a non-negotiable price for a good or service in a concentrated market where the demand facing the firm is determined, in part, by a random variable. The theoretical findings are the opposite of those in competitive markets; Proposition 1 states that the optimal output of a risk-averse firm is expected to be larger than that of a risk-neutral firm if the expected payoff of its marginal profit is less than or equal to 1. Proposition 2 states that the optimal output of a risk-seeking firm is expected to be smaller than that of a risk-neutral firm if the expected payoff of its marginal profit is greater than 1.

Suggested Citation

  • Mantell, Edmund H., 2021. "The economics of posted prices in a concentrated market where demand is uncertain," Research in Economics, Elsevier, vol. 75(4), pages 365-375.
    • Handle: RePEc:eee:reecon:v:75:y:2021:i:4:p:365-375
    DOI: 10.1016/j.rie.2021.10.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Posted prices; Foregone profits; Random demand; Attitude towards risk;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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