 Optimal nonlinear pricing by a monopoly with smooth ambiguity preferencesKit Pong Wong International Review of Economics & Finance, 2024, vol. 89, issue PA, 594-604 Abstract: This paper examines the optimal nonlinear pricing by a monopolist who has smooth ambiguity preferences and sells a single good to two types of buyers with high and low valuation. Ambiguity arises from the monopolist’s uncertainty about which of the subjective beliefs govern the unobserved types of buyers. We show that the prevalence of ambiguity aversion distorts the rent extraction-efficiency tradeoff under asymmetric information in the standard model. Specifically, the ambiguity-averse monopolist acts in a pessimistic manner with the perception that buyers are less likely to have high valuation than the objective beliefs. Compared with the standard model, low valuation buyers consume a less downward distorted quantity and high valuation buyers enjoy a greater information rent. The unit prices paid by all buyers are reduced and the ambiguity-averse monopolist earns a smaller expected profit. Keywords: Monopoly; Nonlinear pricing; Smooth ambiguity preferences (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pa:p:594-604 DOI: 10.1016/j.iref.2023.07.091 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
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