EconPapers    
Economics at your fingertips  
 

On repeated myopic use of the inverse elasticity pricing rule

Kenneth Fjell and Debashis Pal

Economics Letters, 2019, vol. 175, issue C, 12-14

Abstract: We examine the effects of repeated myopic use of the inverse elasticity pricing rule. By myopic, we mean ignoring that elasticity and marginal cost may vary with output and price. It is known that myopic use of the rule leads to price changes which are too large relative to the optimal price change (Fjell, 2003). While some microeconomics textbooks suggest that the rule may be used repeatedly to reach optimal price, they are vague about the conditions for when this works. We show that repeated myopic use leads to convergence if demand is sufficiently convex, and specify an exact condition.

Keywords: Microeconomics; Markup pricing; Elasticity (search for similar items in EconPapers)
JEL-codes: C61 D40 L11 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176518304853
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:175:y:2019:i:c:p:12-14

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-03-16
Handle: RePEc:eee:ecolet:v:175:y:2019:i:c:p:12-14