Markup Pricing and Demand Uncertainty
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.
|Date of creation:||10 Oct 1997|
|Date of revision:||01 Jun 1998|
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- Timothy PARK & Luanne LOHR, 1996.
"Wholesaler Markup Decisions Under Demand Uncertainty,"
96-13, University of Georgia, Department of Agricultural and Applied Economics.
- Park, Timothy A. & Lohr, Luanne, 1996. "Wholesaler Markup Decisions Under Demand Uncertainty," Faculty Series 16699, University of Georgia, Department of Agricultural and Applied Economics.
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- Leland, Hayne E, 1972. "Theory of the Firm Facing Uncertain Demand," American Economic Review, American Economic Association, vol. 62(3), pages 278-291, June.
- Nishimura, Kiyohiko G, 1989. "Customer Markets and Price Sensitivity," Economica, London School of Economics and Political Science, vol. 56(222), pages 187-198, May. Full references (including those not matched with items on IDEAS)
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