EconPapers    
Economics at your fingertips  
 

Robust Monopoly Pricing

Dirk Bergemann () and Karl Schlag ()

No 1527R2, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We consider a robust version of the classic problem of optimal monopoly pricing with incomplete information. In the robust version, the seller faces model uncertainty and only knows that the true demand distribution is in the neighborhood of a given model distribution. We characterize the optimal pricing policy under two distinct, but related, decision criteria with multiple priors: (i) maximin expected utility and (ii) minimax expected regret. The resulting optimal pricing policy under either criterion yields a robust policy to the model uncertainty. While the classic monopoly policy and the maximin criterion yield a single deterministic price, minimax regret always prescribes a random pricing policy, or equivalently, a multi-item menu policy. Distinct implications of how a monopolist responds to an increase in uncertainty emerge under the two criteria.

Keywords: Monopoly; Optimal pricing; Robustness; Multiple priors; Regret (search for similar items in EconPapers)
JEL-codes: C79 D82 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2005-07, Revised 2008-09
New Economics Papers: this item is included in nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://cowles.yale.edu/sites/default/files/files/pub/d15/d1527-r2.pdf (application/pdf)

Related works:
Chapter: Robust Monopoly Pricing (2012) Downloads
Journal Article: Robust monopoly pricing (2011) Downloads
Working Paper: Robust Monopoly Pricing (2007) Downloads
Working Paper: Robust Monopoly Pricing (2007) Downloads
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:cwl:cwldpp:1527rr

Ordering information: This working paper can be ordered from
Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
The price is None.

Access Statistics for this paper

More papers in Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University Yale University, Box 208281, New Haven, CT 06520-8281 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Matthew Regan ().

 
Page updated 2020-04-06
Handle: RePEc:cwl:cwldpp:1527rr