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Optimal price adjustment under imperfect information


Bhaduri, Amit; Falkinger, Josef (1990). Optimal price adjustment under imperfect information. European Economic Review, 34(5):941-952.

Abstract

Variations in cost and demand do not have symmetrical impact on the optimal price of the imperfectly competitive firm. This asymmetry is not so important as long as information regarding both cost and demand is sufficient. However, it becomes crucially important in case of incomplete information. Usually firms have more complete or ‘harder’ information on cost than on demand. This difference in information status on the cost and on the demand side can explain both cost-based pricing and slow price adjustment to demand in an optimizing framework with Bayesian learning about changed demand conditions.

Abstract

Variations in cost and demand do not have symmetrical impact on the optimal price of the imperfectly competitive firm. This asymmetry is not so important as long as information regarding both cost and demand is sufficient. However, it becomes crucially important in case of incomplete information. Usually firms have more complete or ‘harder’ information on cost than on demand. This difference in information status on the cost and on the demand side can explain both cost-based pricing and slow price adjustment to demand in an optimizing framework with Bayesian learning about changed demand conditions.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:July 1990
Deposited On:09 Oct 2013 13:17
Last Modified:05 Apr 2016 17:02
Publisher:Elsevier
ISSN:0014-2921
Publisher DOI:https://doi.org/10.1016/0014-2921(90)90016-R

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