Work

Robust product design and pricing

Year: 2025

Type: article

Abstract: We study design and pricing by a monopolist who has no information about the distributionof consumers’ tastes and maximizes her profit under the worst-case scenario. We show that heroptimal strategy takes a simple form of dividing the taste space into a finite number of equal lengthintervals and serving consumers on a randomly chosen interval. We obtain this resultby studying the dual problem of finding a distribution of consumers’ tastes that minimizesthe seller’s profit and establishing strong duality. The profit-minimizing distributions exhibita uniformity property, assigning equal probability mass to a finite number of partition cells ofequal width. Through the dual, we also determine the seller’s lowest profit in the Bayesiansetting, establish that it is strictly positive, and derive the set of achievable profits.

Source: Journal of Economic Theory

DOI: 10.1016/j.jet.2025.106112

Authors: Kyungmin Kim, Nenad Kos

Institutions: Emory University, Bocconi University

Language: English

Topic: Consumer Market Behavior and Pricing

Subfield: Marketing

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,030