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Robust Monopoly Pricing

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  • Dirk Bergemann
  • Karl Schlag

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

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 321307000000000983.

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Date of creation: 13 Apr 2007
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Handle: RePEc:cla:levrem:321307000000000983

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Citations

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Cited by:
  1. Kristóf Madarász & Andrea Prat, 2010. "Screening with an Approximate Type Space," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /2010/548, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Ludovic Renou & Karl Schlag, 2008. "Minimax regret and strategic uncertainty," Economics Working Papers 1087, Department of Economics and Business, Universitat Pompeu Fabra.
  3. 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.
  4. 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.
  5. 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.
  6. Ronald Stauber, 2014. "A framework for robustness to ambiguity of higher-order beliefs," International Journal of Game Theory, Springer, vol. 43(3), pages 525-550, August.
  7. Dirk Bergemann & Karl H. Schlag, 2007. "Pricing without Priors," Cowles Foundation Discussion Papers 1625, Cowles Foundation for Research in Economics, Yale University.
  8. Michal Król, 2011. "Product differentiation decisions under ambiguous consumer demand and pessimistic expectations," The School of Economics Discussion Paper Series, Economics, The University of Manchester 1103, Economics, The University of Manchester.
  9. 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.
  10. 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.
  11. Andrea Gallice, 2006. "Predicting one Shot Play in 2x2 Games Using Beliefs Based on Minimax Regret," Working Papers 2006.31, Fondazione Eni Enrico Mattei.
  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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