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Robust monopoly pricing

  • Bergemann, Dirk
  • Schlag, Karl

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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File URL: http://www.sciencedirect.com/science/article/pii/S0022053111001517
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 6 ()
Pages: 2527-2543

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:6:p:2527-2543
DOI: 10.1016/j.jet.2011.10.018
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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