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Learning about variable demand in the long run

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  • Rustichini, Aldo
  • Wolinsky, Asher

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 non-negligible, as long as the discount factor is below 1.
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  • Rustichini, Aldo & Wolinsky, Asher, 1995. "Learning about variable demand in the long run," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 1283-1292.
    • Handle: RePEc:eee:dyncon:v:19:y:1995:i:5-7:p:1283-1292
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    Cited by:

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    3. Jeffrey R. Campbell & Benjamin Eden, 2014. "Rigid Prices: Evidence From U.S. Scanner Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(2), pages 423-442, May.
    4. Urtzi Ayesta & M Erausquin & E Ferreira & P Jacko, 2016. "Optimal Dynamic Resource Allocation to Prevent Defaults," Working Papers hal-01300681, HAL.
    5. Daniel Levy & Sourav Ray & Li Wang & Mark Bergen, 2019. "Pricing Better," Working Papers 008-19 JEL Codes: M31, E3, International School of Economics at TSU, Tbilisi, Republic of Georgia.
    6. Battaglini, Marco, 2007. "Optimality and renegotiation in dynamic contracting," Games and Economic Behavior, Elsevier, vol. 60(2), pages 213-246, August.
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    8. Taub, B., 2023. "Signal-jamming in the frequency domain," Games and Economic Behavior, Elsevier, vol. 142(C), pages 896-930.
    9. Marco Ottaviani & Giuseppe Moscarini & Lones Smith, 1998. "Social learning in a changing world," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 657-665.
    10. Loginova, Oksana & Taylor, Curtis, 2003. "Price Experimentation with Strategic Buyers," Working Papers 03-02, Duke University, Department of Economics.
    11. Oksana Loginova & Curtis Taylor, 2008. "Price experimentation with strategic buyers," Review of Economic Design, Springer;Society for Economic Design, vol. 12(3), pages 165-187, September.
    12. Batlome Janjgava & Sergey Slobodyan, 2011. "Duopoly Competition, Escape Dynamics and Non-cooperative Collusion," CERGE-EI Working Papers wp445, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    13. Xiao, Baichun & Yang, Wei, 2021. "A Bayesian learning model for estimating unknown demand parameter in revenue management," European Journal of Operational Research, Elsevier, vol. 293(1), pages 248-262.
    14. Francesco Squintani & Juuso Valimaki, 1999. "Imitation and Experimentation in a Changing Environment," Discussion Papers 1275, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    15. N. Bora Keskin & Assaf Zeevi, 2017. "Chasing Demand: Learning and Earning in a Changing Environment," Mathematics of Operations Research, INFORMS, vol. 42(2), pages 277-307, May.
    16. Dan Bernhardt & Bart Taub, 2015. "Learning about common and private values in oligopoly," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 66-85, March.
    17. Battaglini, Marco & Lamba, Rohit, 2019. "Optimal dynamic contracting: the first-order approach and beyond," Theoretical Economics, Econometric Society, vol. 14(4), November.
    18. Wieland, Volker, 2000. "Learning by doing and the value of optimal experimentation," Journal of Economic Dynamics and Control, Elsevier, vol. 24(4), pages 501-534, April.
    19. Kaywana Raeburn & Jim Engle-Warnick & Sonia Laszlo & Jian Li, 2016. "Learning in a Bandit Game and Technology Choice," CIRANO Working Papers 2016s-47, CIRANO.
    20. Sergiu Ungureanu, 2017. "Dynamic contracting under permanent and transitory private information," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(3), pages 667-692, August.
    21. Marco Battaglini, 2005. "Long-Term Contracting with Markovian Consumers," American Economic Review, American Economic Association, vol. 95(3), pages 637-658, June.
    22. Mason, Robin & Välimäki, Juuso, 2011. "Learning about the arrival of sales," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1699-1711, July.
    23. Urtzi Ayesta & M Erausquin & E Ferreira & P Jacko, 2016. "Optimal Dynamic Resource Allocation to Prevent Defaults," Post-Print hal-01300681, HAL.
    24. Tracy R. Lewis & Huseyin Yildirim, 2002. "Managing Dynamic Competition," American Economic Review, American Economic Association, vol. 92(4), pages 779-797, September.
    25. Agbo, Maxime, 2015. "A perpetual search for talents across overlapping generations: A learning process," Mathematical Social Sciences, Elsevier, vol. 76(C), pages 131-145.

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