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Robust Firm Pricing with Panel Data


  • James W. Roberts
  • Benjamin R. Handel
  • Kanishka Misra


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.

Suggested Citation

  • James W. Roberts & Benjamin R. Handel & Kanishka Misra, 2009. "Robust Firm Pricing with Panel Data," Working Papers 10-81, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:10-81

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    References listed on IDEAS

    1. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
    2. Aruoba, S. Boragan & Fernandez-Villaverde, Jesus & Rubio-Ramirez, Juan F., 2006. "Comparing solution methods for dynamic equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2477-2508, December.
    3. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
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    More about this item


    Firm Pricing; Minimax Regret; Partial Identification; Panel Data;

    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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