Optimal monopolist pricing under demand uncertainty in dynamic markets

Article Abstract:

A study is conducted to investigate pricing policy for a monopolist confronted with demand uncertainty in a market marked by demand and cost dynamics. The nature of the optimal pricing policy over time for a general specification of a stochastic optimization model is examined. The study focuses on the anticipated slope of the price path over time under demand uncertainty and on price differences around the expected price path. It is found that the extent to which optimal pricing policy is influenced by demand uncertainty generally depends on the interplay among uncertainty, dynamics on the demand side and or on the cost side, and the discount rate of the company. These results demonstrate the importance of incorporating uncertainty in long-term pricing decisions for companies subject to dynamic market conditions with high demand uncertainty.

Models, Monopolies, Stochastic processes

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Logit demand estimation under competitive pricing behavior: an equilibrium framework

Article Abstract:

A study was conducted to determine econometric estimates of a logit demand system wherein observed prices and market shares are obtained endogenously through equilibrium behavior. The logit demand system was estimated with equilibrium pricing equations for a couple of product groups by retail scanner data and cost data on factor prices. Theoretical perspectives were developed on the association between value creation and competitive advantage for logit demand systems. Results indicated that bias associated with the estimates of the price response parameter and brand-specific constraints correlated with a disregard for the endogeneity of prices. Findings also showed that estimating the logit model based on an equilibrium framework promoted the competitive positions of brands within a specific product category.

Econometrics & Model Building, Pricing Policy, Competition (Economics), Econometrics, Business models

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