Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2015-05-29
Number: 15-065/VIII
Author-Name: Achim I. Czerny
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Author-Name: Erik T. Verhoef
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Author-Name: Anming Zhang
Author-Workplace-Name: University of British Columbia, Canada
Title: A Theory of Continuous Uncertainty Types
Abstract: This paper distinguishes uncertainty types that differ continuously with respect to the degree to which uncertainty affects the optimal price/price markup or optimal quantity. A monopoly example is used to show that seemingly strong assumptions on functional forms can represent a wide variety of different scenarios, while (implicit) assumptions on continuous uncertainty types can lead to quite special results. Monopoly examples of the newsboy problem type are further used to show that the optimal capacity level and the optimal composition of capacity in terms of the number and size of production units depends crucially on the type of uncertainty and the employed functional forms for utilities and costs.
Classification-JEL: D42, D80, L91
Keywords: Continuous uncertainty types, demand uncertainty, cost uncertainty, monopoly, newsboy problem
File-Url: https://papers.tinbergen.nl/15065.pdf
File-Format: application/pdf
File-Size: 423289 bytes
Handle: RePEc:tin:wpaper:20150065