On Price Recognition and Computational Complexity in a Monopolistic Model

Ariel Rubinstein (rariel@tauex.tau.ac.il)

No 275520, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: The paper introduces a simple economic model in which the decision makers differ in their ability to recognize price offers. The cornerstone of the model is a market for an indivisible good produced by a monopolist who receives exclusive information on the state of nature affecting the production costs and the consumers' evaluation of the good. The market operates so that the monopolist has to commit himself to a price and each consumer has to decide whether he accepts or rejects the offer. The monopolist has an interest in only a fraction of the consumers accepting the offer. The heterogeneity of the consumers is modelled first, in terms of the limits on the fineness of the price recognition and second, in terms of the limits on the complexity of the computations they can make. In the second submodel, tools are borrowed from the parallel computation literature. In equilibrium, the monopolist announces a price scheme which is sufficiently complicated that only some of the consumers (the more "sophisticated" ones) can decode all the information contained in the prices. Such pricing strategies enable the monopolist to increase his profits relative to those he could derive from a set of homogeneous consumers.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 24
Date: 1991-08
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/275520/files/TEL-AVIV-FSWP-189.pdf (application/pdf)

Related works:
Working Paper: On Price Recognition and Computational Complexity in a Monopolistic Model (1991)
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:ags:isfiwp:275520

DOI: 10.22004/ag.econ.275520

Access Statistics for this paper

More papers in Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search (aesearch@umn.edu).