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A technical note on the derivation of the Bayesian-Ramsey pricing rule

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  • Leonard, Herman B.
  • Tye, William B.

Abstract

"Bayesian-Ramsey pricing" has been offered to correct for the undue sensitivity of the Baumol and Bradford formulation of Ramsey pricing to relatively small errors in the highly uncertain least-squares estimates of the relevant demand elasticities. This paper provides a derivation of the Ramsey pricing equation under uncertainty and of the required expectations for the case of linear demand curve under uncertainty characterized by a truncated normal posterior distribution. Such a posterior would arise from normal sample data in combination with an improper prior. These equations were used in a previously published paper in this journal to evaluate the Bayesian approach.

Suggested Citation

  • Leonard, Herman B. & Tye, William B., 1986. "A technical note on the derivation of the Bayesian-Ramsey pricing rule," Transportation Research Part B: Methodological, Elsevier, vol. 20(1), pages 41-47, February.
    • Handle: RePEc:eee:transb:v:20:y:1986:i:1:p:41-47
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