SSRN Author: Robert S. PindyckRobert S. Pindyck SSRN Content
http://www.ssrn.com/author=25841
http://www.ssrn.com/rss/en-usWed, 10 Feb 2016 01:31:29 GMTeditor@ssrn.com (Editor)Wed, 10 Feb 2016 01:31:29 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0REVISION: Pricing with Limited Knowledge of DemandHow should a firm price a new product for which little is known about demand? We propose a pricing rule that can be used if the firm can estimate (even roughly) the maximum price it can charge and still expect to sell some units, and the firm need not know in advance the quantity it will sell. The rule is simple: Set price as though the demand curve were linear. We show that if the true demand curve is one of many commonly used demand functions, or even a more complex function, and if marginal cost is known and constant, the firm can expect its profit to be close to what it would earn if it knew the true demand curve. We derive analytical performance bounds for a variety of demand functions, calculate expected profit performance for randomly generated demand curves, and evaluate the welfare implications of our pricing rule.
http://www.ssrn.com/abstract=2673810
http://www.ssrn.com/1468763.htmlTue, 09 Feb 2016 14:00:57 GMTREVISION: Pricing with Limited Knowledge of DemandHow should a firm price a new product for which little is known about demand? We propose a simple pricing rule: the firm only estimates the maximum price it can charge and still expect to sell at least some units, and then sets price as though the actual demand curve were linear. We show that if the true demand curve is one of many commonly used demand functions, or even if it is a more complex function, and if marginal cost is known and constant, the firm can expect its profit to be close to what it would earn if it knew the true demand curve. We derive analytical performance bounds for a variety of demand functions, and calculate expected profit performance for randomly generated demand curves.
http://www.ssrn.com/abstract=2673810
http://www.ssrn.com/1436754.htmlThu, 15 Oct 2015 11:51:22 GMT