Optimal Experimentation in a Changing Environment
R Keller () and
Sven Rady ()
Game Theory and Information from University Library of Munich, Germany
This paper studies optimal experimentation by a monopolist who faces an unknown demand curve subject to random changes, and who maximises profits over an infinite horizon in continuous time. We show that there are two qualitatively very different regimes, determined by the discount rate and the intensities of demand curve switching, and the dependence of the optimal policy on these parameters is discontinuous. One regime is characterised by extreme experimentation and good tracking of the prevailing demand curve, the other by moderate experimentation and poor tracking. Moreover, in the latter regime the agent eventually becomes `trapped' into taking actions in a strict subset of the feasible set.
Keywords: Bayesian Learning; Monopoly Experimentation; Optimal Control (search for similar items in EconPapers)
JEL-codes: D42 D83 C61 (search for similar items in EconPapers)
Pages: 57 pages
Note: Type of Document - PDF; pages: 57 ; figures: included
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Journal Article: Optimal Experimentation in a Changing Environment (1999)
Working Paper: Optimal Experimentation in a Changing Environment (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpga:9801001
Access Statistics for this paper
More papers in Game Theory and Information from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ().