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Robust monopoly pricing

Author

Listed:
  • Bergemann, Dirk
  • Schlag, Karl
Abstract
We consider a robust version of the classic problem of optimal monopoly pricing with incomplete information. In the robust version, the seller faces model uncertainty and only knows that the true demand distribution is in the neighborhood of a given model distribution. We characterize the pricing policies under two distinct decision criteria with multiple priors: (i) maximin utility and (ii) minimax regret. The equilibrium price under either criterion is lower then in the absence of uncertainty. The concern for robustness leads the seller to concede a larger information rent to all buyers with values below the optimal price without uncertainty.

Suggested Citation

  • Bergemann, Dirk & Schlag, Karl, 2011. "Robust monopoly pricing," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2527-2543.
    • Handle: RePEc:eee:jetheo:v:146:y:2011:i:6:p:2527-2543
    DOI: 10.1016/j.jet.2011.10.018
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    More about this item

    Keywords

    Monopoly; Robustness; Multiple priors; Maximin utility; Minimax regret; Robust mechanism design;
    All these keywords.

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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