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Markup Pricing and Demand Uncertainty

Markus Pasche ()

Working Paper Series B from Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät

Abstract: In standard market theory demand and cost functions have to be known to compute optimal price or quantity responses. In case of risk or uncertainty the decisions depend on expectations, i.e. estimated parameters. Even in case of rational inference these expectations itself are uncertain, at least in case of limited cognitive abilities, perception or processing errors. Therefore ex post the expected utility maximizing behavior is not optimal in general. This paper shows that simple rules like Markup Pricing are more robust against errors and estimation risk and could outperform usual rational decision making.

Keywords: Markup Pricing; demand uncertainty; bounded rationality; performance; robust behavior (search for similar items in EconPapers)
JEL-codes: D40 D42 D81 L12 (search for similar items in EconPapers)
Date: 1997-10-10, Revised 1998-06-01
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Persistent link: https://EconPapers.repec.org/RePEc:jen:jenavo:1997-08

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