TY - JOUR
T1 - Optimal pricing and quality choice of a monopolist under Knightian uncertainty
AU - Asano, Takao
AU - Shibata, Akihisa
N1 - Funding Information:
We would like to thank the Co-Editor and two anonymous referees whose comments improved this paper substantially. We are also grateful to Youichiro Higashi, Keiichi Hori, Kazuya Hyogo, Ikuo Ishibashi, Noriaki Matsushima, Keizo Mizuno, Norio Takeoka, Tsuyoshi Toshimitsu, and Motoh Tsujimura for their helpful comments and discussions on this work. We acknowledge financial support from the Grant-in-Aid for Scientific Research, JSPS , and the Zengin Foundation for Studies on Economics and Finance .
PY - 2011/11
Y1 - 2011/11
N2 - This paper analyzes a simple vertical product differentiation model with demand uncertainty and derives a risk neutral monopolist's optimal market entry timing, her optimal pricing and optimal quality choice by incorporating Knightian uncertainty, irreversibility, and flexibility in quality-enhancing investment into a continuous-time stochastic model. It is shown that an increase in Knightian uncertainty induces decreases in the optimal price, the optimal quality, and the value of undertaking the quality-enhancing investment by the monopolist. The social optimal entry timing, pricing and quality are also analyzed.
AB - This paper analyzes a simple vertical product differentiation model with demand uncertainty and derives a risk neutral monopolist's optimal market entry timing, her optimal pricing and optimal quality choice by incorporating Knightian uncertainty, irreversibility, and flexibility in quality-enhancing investment into a continuous-time stochastic model. It is shown that an increase in Knightian uncertainty induces decreases in the optimal price, the optimal quality, and the value of undertaking the quality-enhancing investment by the monopolist. The social optimal entry timing, pricing and quality are also analyzed.
KW - Knightian uncertainty
KW - Monopoly pricing
KW - Quality choice
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U2 - 10.1016/j.ijindorg.2011.04.002
DO - 10.1016/j.ijindorg.2011.04.002
M3 - Article
AN - SCOPUS:80054712667
VL - 29
SP - 746
EP - 754
JO - International Journal of Industrial Organization
JF - International Journal of Industrial Organization
SN - 0167-7187
IS - 6
ER -