Robust Firm Pricing with Panel Data
AbstractWe present an econometric framework for robust pricing based on credible assumptions about consumer behavior. First, we introduce a panel data discrete choice model whose realistic assumptions about consumer behavior result in partial identification of preferences. Next we address the resulting ambiguity in the firm pricing problem since it cannot use standard techniques to maximize expected profit. We present four models diciphering in how they account for potential variation in preferences over time.We then use the minimax regret criterion as a decision-making rule for firms facing ambiguity about consumer preferences. We study monopoly and oligopoly. We perform simulations that illustrate our methodology and compare our model results to the most common parametric model used in this setting. We show that in the likely event that the parametric assumptions do not represent the underlying data generating process, decisions based on the models presented in this paper substantially improve firm performance.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 10-81.
Date of creation: 2009
Date of revision:
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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
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Web page: http://econ.duke.edu/
Firm Pricing; Minimax Regret; Partial Identification; Panel Data;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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