Optimal pricing and quality choice of a monopolist under Knightian uncertainty

Takao Asano, Akihisa Shibata

Research output: Contribution to journalArticle

6 Citations (Scopus)

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 languageEnglish
Pages (from-to)746-754
Number of pages9
JournalInternational Journal of Industrial Organization
Volume29
Issue number6
DOIs
Publication statusPublished - Nov 1 2011

Keywords

  • Knightian uncertainty
  • Monopoly pricing
  • Quality choice

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

Fingerprint Dive into the research topics of 'Optimal pricing and quality choice of a monopolist under Knightian uncertainty'. Together they form a unique fingerprint.

  • Cite this