Learning about variable demand in the long run

Aldo Rustichini, Asher Wolinsky

Research output: Contribution to journalArticle

25 Scopus citations

Abstract

This paper studies the problem of a monopoly who is uncertain about the demand it faces and learns about it over time through its pricing experience. The demand curve facing the monopoly is not constant - it changes over time in a Markovian fashion. We characterize the monopoly's optimal policy and inquire how it differs from an informed monopoly's policy. It turns out that, even when the rate at which the demand varies is negligible, the stationary probability with which the monopoly's policy deviates from its informed counterpart is nonnegligible, as long as the discount factor is below 1.

Original languageEnglish (US)
Pages (from-to)1283-1292
Number of pages10
JournalJournal of Economic Dynamics and Control
Volume19
Issue number5-7
DOIs
StatePublished - Jan 1 1995
Externally publishedYes

Keywords

  • Learning
  • Markov
  • Monopolist
  • Stationary distribution
  • Unknown demand

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