The economics of posted prices in a concentrated market where demand is uncertain |
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| Institution: | 1. Shaanxi Normal University, Center for Experimental Economics in Education, 620 West Chang''an Ave, Xi''an, Shaanxi, China, (86) 158-2900-9858;2. Department of Economics and Finance, Michael J. Coles College of Business, Kennesaw State University, 1000 Chastain Road, Kennesaw, Georgia 30144, (470) 578-6111;3. Shaanxi Normal University, Center for Experimental Economics in Education, 620 West Chang''an Ave, Xi''an, Shaanxi, China, (86)-134-8495-0704;4. Department of Economics and Business Management, Agnes Scott College, 141 E. College Avenue, Decatur, Georgia 30030, (404) 471-6556;5. Shaanxi Normal University, Center for Experimental Economics in Education, 620 West Chang''an Ave, Xi''an, Shaanxi, China, (86)-138-9283-3777;1. Federal Reserve Bank of Cleveland, Cleveland, Ohio, USA;2. Federal Reserve Bank of Cleveland and NBER/CRIW, 1455 E 6th Street, Cleveland, OH 44114 USA;1. Department of Business Administration Program, Pontifical Catholic University of Parana, Curitiba, PR, Brazil;2. Department of Economics, Finance and Marketing, Tennessee Technological University, Cookeville, United States;1. Department of Biomedical Sciences and Public Health, Marche Polytechnic University, Via Tronto 10/A, Torrette di Ancona 60126, Italy;2. Faculty of Philosophy, Philosophy of Science and the Study of Religion, LMU Munich, Geschwister-Scholl-Platz 1, Munich 80539, Germany;3. Faculty of Psychology and Educational Sciences, LMU Munich, Leopoldstrasse 13, Munich 80802, Germany |
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| Abstract: | This paper analyses the theory of the optimal output decision for a firm whose policy is to post a non-negotiable price for a good or service in a concentrated market where the demand facing the firm is determined, in part, by a random variable. The theoretical findings are the opposite of those in competitive markets; Proposition 1 states that the optimal output of a risk-averse firm is expected to be larger than that of a risk-neutral firm if the expected payoff of its marginal profit is less than or equal to 1. Proposition 2 states that the optimal output of a risk-seeking firm is expected to be smaller than that of a risk-neutral firm if the expected payoff of its marginal profit is greater than 1. |
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