Robust Firm Pricing with Panel Data
We 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.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (919) 660-1800
Fax: (919) 684-8974
Web page: http://econ.duke.edu/
When requesting a correction, please mention this item's handle: RePEc:duk:dukeec:10-81. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Department of Economics Webmaster)
If references are entirely missing, you can add them using this form.