Learning about Variable Demand in the Long Run

Aldo Rustichini and Asher Wolinsky

No 1993017, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper studies the problem of a monopoly who is uncertain about the demand it faces and learns about it over time through its pricing experience. The demand curve facing the monopoly is not constant - it changes over time in a Markovian fashion. We characterize the monopoly's optimal policy and inquire how it differs from an informed monopoly's policy. It turns out that, even when the rate at which the demand varies is negligible, the stationary probability with which the monopoly's policy deviates from its informed counterpart is non-negligible, as long as the discount factor is below 1.

Date: 1993-05-01
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Related works:
Journal Article: Learning about variable demand in the long run (1995)
Working Paper: Learning about Variable Demand in the Long Run (1992)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:1993017

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