The economics of posted prices in a concentrated market where demand is uncertain

Edmund H. Mantell

Research in Economics, 2021, vol. 75, issue 4, 365-375

Abstract: This paper analyses the theory of the optimal output decision for a firm whose policy is to post a non-negotiable price for a good or service in a concentrated market where the demand facing the firm is determined, in part, by a random variable. The theoretical findings are the opposite of those in competitive markets; Proposition 1 states that the optimal output of a risk-averse firm is expected to be larger than that of a risk-neutral firm if the expected payoff of its marginal profit is less than or equal to 1. Proposition 2 states that the optimal output of a risk-seeking firm is expected to be smaller than that of a risk-neutral firm if the expected payoff of its marginal profit is greater than 1.

Keywords: Posted prices; Foregone profits; Random demand; Attitude towards risk (search for similar items in EconPapers)
JEL-codes: D21 D24 D81 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reecon:v:75:y:2021:i:4:p:365-375

DOI: 10.1016/j.rie.2021.10.002

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