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Firm's Static Behavior under Dynamic Demand

Author

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  • Takeshi Fukasawa

    (Graduate School of Economics, The University of Tokyo and Junior Research Fellow, Research Institute for Economics and Business Administration, Kobe University, JAPAN)

Abstract

This study investigates in what cases a firm's dynamic price-setting behavior can be approximated as static under dynamic demand, by developing a dynamic discrete choice model. Under dynamic demand with random utility shock following Gumbel distribution, this study shows that an oligopolistic firm's optimal price-setting behavior is well approximated by the static one with no strategic consideration, when consumers' conditional choice probabilities (CCPs) of choosing the firm's product are small for all consumer types and state variables. If the condition does not hold, the firm's behavior might be far from static.

Suggested Citation

  • Takeshi Fukasawa, 2022. "Firm's Static Behavior under Dynamic Demand," Discussion Paper Series DP2022-19, Research Institute for Economics & Business Administration, Kobe University, revised Sep 2022.
    • Handle: RePEc:kob:dpaper:dp2022-19
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2022-19.pdf
    File Function: Revised version, 2022
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    Cited by:

    1. Takeshi Fukasawa, 2022. "The Biases in Applying Static Demand Models under Dynamic Demand," Discussion Paper Series DP2022-18, Research Institute for Economics & Business Administration, Kobe University, revised Jul 2022.

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    Keywords

    Dynamic demand; Dynamic price-setting behavior; Static approximation; Monopolistic competition; Dynamic discrete choice;
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