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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
Link zum Volltext
Quelle
Business Source Ultimate
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.