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Managerial utility‐maximizing operating decisions under compound demand risk
Author(s) -
Harris Frederick H. Deb.,
Dennis Richard L.
Publication year - 1985
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090060105
Subject(s) - microeconomics , demand curve , economics , on demand , risk aversion (psychology) , derived demand , demand management , marginal cost , product (mathematics) , constant (computer programming) , product differentiation , expected utility hypothesis , computer science , commerce , mathematical economics , programming language , macroeconomics , geometry , mathematics , cournot competition
This paper examines the demand and cost conditions under which utility maximizing pricing‐risk and advertising‐risk relationships are determinate. The structure of the firm's demand uncertainty captures both uncertain customer arrivals and uncertain individual customer demand. In addition to standard demand restrictions and constant marginal cost, determinate results depend upon the degree of managerial risk‐aversion, the correlation between individual demand and customer arrival disturbances, the firm's cost fixity, and bounded product differentiation effects of advertising. The symmetry between price‐cuts and advertising as demand‐increasing costs is extensively examined; firm equilibrium requires that price‐cuts not be an inferior input for increasing demand.