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Markup Pricing and Demand Uncertainty

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Author Info
Markus Pasche () (University of Jena, Faculty of Economics)

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Abstract

In 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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Publisher Info
Paper provided by Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät in its series Working Paper Series B with number 1997-08.

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Date of creation: 10 Oct 1997
Date of revision: 01 Jun 1998
Handle: RePEc:jen:jenavo:1997-08

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Related research
Keywords: Markup Pricing; demand uncertainty; bounded rationality; performance; robust behavior;

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

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Fraser, Robert W, 1985. "Uncertainty and the Theory of Mark-up Pricing," Bulletin of Economic Research, Blackwell Publishing, vol. 37(1), pages 55-64, January.
  2. Joaquim Oliveira Martins & Stefano Scarpetta & Dirk Pilat, 1996. "Mark-Up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries," OECD Economics Department Working Papers 162, OECD, Economics Department. [Downloadable!]
  3. Leland, Hayne E, 1972. "Theory of the Firm Facing Uncertain Demand," American Economic Review, American Economic Association, vol. 62(3), pages 278-91, June. [Downloadable!] (restricted)
  4. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October. [Downloadable!] (restricted)
  5. Nishimura, Kiyohiko G, 1989. "Customer Markets and Price Sensitivity," Economica, London School of Economics and Political Science, vol. 56(222), pages 187-98, May. [Downloadable!] (restricted)
  6. Park, Timothy & Lohr, Luanne, 1996. "Wholesaler Markup Decisions Under Demand Uncertainty," Faculty Series 16699, University of Georgia, Department of Agricultural and Applied Economics. [Downloadable!]
  7. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Markus Pasche, 1998. "An Approach to Robust Decision Making: The Rationality of Heuristic Behavior," Working Paper Series B 1998-10, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät. [Downloadable!]
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