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Pricing without Priors

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  • Dirk Bergemann
  • Karl H Schlag

Abstract

We consider the problem of pricing a single object when the seller has only minimal information about the true valuation of the buyer. Specifically, the seller only knows the support of the possible valuations and has no further distributional information. The seller is solving this choice problem under uncertainty by minimizing her regret. The pricing policy hedges against uncertainty by randomizing over a range of prices. The support of the pricing policy is bounded away from zero. Buyers with low valuations cannot generate substantial regret and are priced out of the market. We generalize the pricing policy without priors to encompass many buyers and many qualities.

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000001557.

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Date of creation: 17 Sep 2007
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Handle: RePEc:cla:levrem:122247000000001557

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  1. Dirk Bergemann & Karl Schlag, 2005. "Robust Monopoly Pricing," Cowles Foundation Discussion Papers 1527RR, Cowles Foundation for Research in Economics, Yale University, revised Sep 2008.
  2. Neeman, Zvika, 2003. "The effectiveness of English auctions," Games and Economic Behavior, Elsevier, vol. 43(2), pages 214-238, May.
  3. Stoye, Jörg, 2011. "Axioms for minimax regret choice correspondences," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2226-2251.
  4. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
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Cited by:
  1. Dirk Bergemann & Karl Schlag, 2005. "Robust Monopoly Pricing," Cowles Foundation Discussion Papers 1527R, Cowles Foundation for Research in Economics, Yale University, revised Apr 2007.
  2. Ng, Tsan Sheng, 2013. "Robust regret for uncertain linear programs with application to co-production models," European Journal of Operational Research, Elsevier, vol. 227(3), pages 483-493.
  3. Michal Król, 2011. "Product differentiation decisions under ambiguous consumer demand and pessimistic expectations," The School of Economics Discussion Paper Series 1103, Economics, The University of Manchester.
  4. Dirk Bergemann & Stephen Morris, 2011. "Robust Mechanism Design: An Introduction," Cowles Foundation Discussion Papers 1818, Cowles Foundation for Research in Economics, Yale University.
  5. Stoye, Jörg, 2012. "Minimax regret treatment choice with covariates or with limited validity of experiments," Journal of Econometrics, Elsevier, vol. 166(1), pages 138-156.
  6. Martin Szydlowski, 2012. "Ambiguity in Dynamic Contracts," Discussion Papers 1543, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Giordani, Paolo E. & Schlag, Karl H. & Zwart, Sanne, 2010. "Decision makers facing uncertainty: Theory versus evidence," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 659-675, August.
  8. Stoye, Jörg, 2011. "Axioms for minimax regret choice correspondences," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2226-2251.
  9. Handel, Benjamin R. & Misra, Kanishka & Roberts, James W., 2013. "Robust firm pricing with panel data," Journal of Econometrics, Elsevier, vol. 174(2), pages 165-185.
  10. Embrey Matthew & Mengel Friederike & Peeters Ronald, 2012. "Strategic commitment and cooperation in experimental games of strategic complements and substitutes," Research Memorandum 052, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  11. Krähmer, Daniel, 2012. "Auction design with endogenously correlated buyer types," Journal of Economic Theory, Elsevier, vol. 147(1), pages 118-141.

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