Optimal pricing and quality choice of a monopolist under Knightian uncertainty

Takao Asano; Akihisa Shibata

doi:10.1016/j.ijindorg.2011.04.002

Optimal pricing and quality choice of a monopolist under Knightian uncertainty

Takao Asano, Akihisa Shibata

Research output: Contribution to journal › Article › peer-review

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 language	English
Pages (from-to)	746-754
Number of pages	9
Journal	International Journal of Industrial Organization
Volume	29
Issue number	6
DOIs	https://doi.org/10.1016/j.ijindorg.2011.04.002
Publication status	Published - 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

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