nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒07‒18
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Robust Monopoly Pricing: The Case of Regret By Dirk Bergemann; Karl Schlag
  2. Advertising on TV: Under- or Overprovision? By Kind, Hans Jarle; Nilssen, Tore; Sørgard, Lars

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Karl Schlag (European University Institute)
    Abstract: We consider a robust version of the classic problem of optimal monopoly pricing with incomplete information. The robust version of the problem is distinct in two aspects: (i) the seller minimizes regret rather than maximizes revenue, and (ii) the seller only knows that the true distribution of the valuations is in a neighborhood of a given model distribution. We characterize the robust pricing policy as the solution to a minimax problem for small and large neighborhoods. In contrast to the classic monopoly policy, which is a single deterministic price, the robust policy is always a random pricing policy, or equivalently, a multi-item menu policy. The responsiveness of the robust policy to an increase in risk is determined by the curvature of the static profit function.
    Keywords: Monopoly, Optimal Pricing, Regret, Robustness
    JEL: C79 D82
    Date: 2005–07
  2. By: Kind, Hans Jarle (Norwegian School of Economics and Business Administration); Nilssen, Tore (Dept. of Economics, University of Oslo); Sørgard, Lars (Norwegian Competition Authority)
    Abstract: We consider a model where TV channels transmit advertising, and viewers dislike such commercials. We find that the less differentiated the TV channels’ programs are, the lower is the amount of advertising in equilibrium. Relative to the social optimum, there is underprovision of advertising if TV channels are sufficiently close substitutes. In such a situation, a merger between TV channels may lead to more advertising and thus improve welfare. A publicly owned TV channel can partly correct market distortions, in some cases by having a larger amount of advertising than a private TV channel. It may actually have advertising even in cases where it is wasteful per se
    Keywords: Television industry; Advertising; Public policy; Mixed oligopoly
    JEL: L82 M37
    Date: 2005–05–22

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