Details

Autor(en) / Beteiligte

• Balvers, Ronald J.
• Cosimano, Thomas F.

Titel

Actively Learning About Demand and the Dynamics of Price Adjustment

Ist Teil von

• The Economic journal (London), 1990-09, Vol.100 (402), p.882-898

Ort / Verlag

Cambridge: Basil Blackwell Ltd

Erscheinungsjahr

1990

Quelle

Business Source Ultimate【Trial: -2024/12/31】【Remote access available】

Beschreibungen/Notizen

• A study examines the dynamic decision-making process that occurs when a firm's actual demand curve is never observed. In addition to the standard complications that arise when optimal decisions are made with uncertainty, the firm must consider the effect of current pricing decisions on how quickly it learns about the location of the demand curve. This implies that prices are relatively insensitive to fully anticipated demand changes. Such price inertia is optimal for the firm because the unknown consequences of price changes add uncertainty that slows the learning process by obstructing the firm's attempt to decompose a change in the quantity demanded into a price change component and an autonomous component. The price stickiness result must be interpreted carefully because: 1. the firm is not formally enveloped in a general equilibrium level, 2. the model may be generalized by allowing persistence in the price-response coefficient, and 3. the assumptions have been made to guarantee a well-behaved solution. These limitations of the model are due in part to the degree of difficulty associated with the problem of active learning.