Markup Pricing and Demand Uncertainty
AbstractIn standard market theory demand and cost functions have to be known to compute optimal price or quantity responses. In case of risk or uncertainty the decisions depend on expectations, i.e. estimated parameters. Even in case of rational inference these expectations itself are uncertain, at least in case of limited cognitive abilities, perception or processing errors. Therefore ex post the expected utility maximizing behavior is not optimal in general. This paper shows that simple rules like Markup Pricing are more robust against errors and estimation risk and could outperform usual rational decision making.
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Bibliographic InfoPaper provided by Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät in its series Working Paper Series B with number 1997-08.
Date of creation: 10 Oct 1997
Date of revision: 01 Jun 1998
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Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
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