Abstract
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.
| Original language | English |
|---|---|
| Pages (from-to) | 746-754 |
| Number of pages | 9 |
| Journal | International Journal of Industrial Organization |
| Volume | 29 |
| Issue number | 6 |
| DOIs | |
| Publication status | Published - Nov 2011 |
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Keywords
- Knightian uncertainty
- Monopoly pricing
- Quality choice
ASJC Scopus subject areas
- Industrial and Manufacturing Engineering
- Industrial relations
- Strategy and Management
- Aerospace Engineering
Cite this
Optimal pricing and quality choice of a monopolist under Knightian uncertainty. / Asano, Takao; Shibata, Akihisa.
In: International Journal of Industrial Organization, Vol. 29, No. 6, 11.2011, p. 746-754.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Optimal pricing and quality choice of a monopolist under Knightian uncertainty
AU - Asano, Takao
AU - Shibata, Akihisa
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
UR - http://www.scopus.com/inward/record.url?scp=80054712667&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=80054712667&partnerID=8YFLogxK
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 -