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Firm's Static Behavior under Dynamic Demand

Takeshi Fukasawa
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Takeshi Fukasawa: Graduate School of Economics, The University of Tokyo and Junior Research Fellow, Research Institute for Economics and Business Administration, Kobe University, JAPAN

No DP2022-19, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This study investigates in what cases a firm's dynamic price-setting behavior can be approximated as static under dynamic demand, by developing a dynamic discrete choice model. Under dynamic demand with random utility shock following Gumbel distribution, this study shows that an oligopolistic firm's optimal price-setting behavior is well approximated by the static one with no strategic consideration, when consumers' conditional choice probabilities (CCPs) of choosing the firm's product are small for all consumer types and state variables. If the condition does not hold, the firm's behavior might be far from static.

Keywords: Dynamic demand; Dynamic price-setting behavior; Static approximation; Monopolistic competition; Dynamic discrete choice (search for similar items in EconPapers)
Pages: 40 pages
Date: 2022-04, Revised 2022-09
New Economics Papers: this item is included in nep-com, nep-dcm and nep-upt
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https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2022-19.pdf Revised version, 2022 (application/pdf)

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