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Duopoly pricing under risk aversion and parameter uncertainty

S. Chan Choi (Associate Professor, in the Rutgers Business School, Newark, NJ, USA)
Sharan Jagpal (Professor, in the Rutgers Business School, Newark, NJ, USA)

Journal of Product & Brand Management

ISSN: 1061-0421

Article publication date: 1 August 2004



Most pricing studies assume that firms have complete information about demand. In practice, managers must make decisions, given incomplete information about the demand for their own products as well as those of their rivals. This paper develops a duopoly pricing model in which firms market differentiated products in a world of uncertainty. Results show that the predictions of standard strategic pricing models may not hold when firms face parameter uncertainty and are risk‐averse. Under well‐defined conditions, there may be a “first‐mover” disadvantage to the firm that attempts to be the Stackelberg price leader in the market, especially in a market where demand is highly uncertain. Interestingly, if parameter uncertainty is sufficiently high, it may even be necessary for the price leader to share market information with its rival. When firms are risk‐averse, uncertainty generally decreases equilibrium prices and the variabilities of profits.



Chan Choi, S. and Jagpal, S. (2004), "Duopoly pricing under risk aversion and parameter uncertainty", Journal of Product & Brand Management, Vol. 13 No. 5, pp. 359-368.



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Copyright © 2004, Emerald Group Publishing Limited

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