Mathematical Miscalculations and Monopoly Pricing Strategies

Bryan McCannon

Eastern Economic Journal, 2009, vol. 35, issue 2, 248-263

Abstract: Economic models focus on prices that announce a cost for one unit. Often prices assigning a cost for multiple units are chosen. For either, any quantity can be purchased at a constant per unit price. I incorporate the experimental phenomenon of mathematical miscalculations to explain the use of both linear pricing strategies. When calculating the per unit price, an error may lead a consumer to either purchase mistakenly or not purchase a unit when she should. These two consequences distinguish the two. Furthermore, I show that announcing a price for multiple units, in certain environments, outperforms non-linear prices. Eastern Economic Journal (2009) 35, 248–262. doi:10.1057/eej.2008.18

Date: 2009
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