The Choice of Prices Versus Quantities Under Uncertainty

23 Pages Posted: 26 Oct 2009

See all articles by Markus Reisinger

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Ludwig Ressner

affiliation not provided to SSRN

Abstract

This paper analyzes a duopoly model with stochastic demand in which firms first commit to a strategy variable and compete afterwards. We find that in equilibrium the relative magnitude of demand uncertainty and the degree of substitutability determines firms' variable choice. Firms set prices if uncertainty is high compared to the degree of substitutability and quantities if the reverse holds true. The reason is that demand uncertainty and the degree of substitutability have countervailing effects on variable choice: Prices adapt better to uncertainty while quantities induce softer competition. If no effect dominates, firms choose different strategy variables in equilibrium.

Suggested Citation

Reisinger, Markus and Ressner, Ludwig, The Choice of Prices Versus Quantities Under Uncertainty. Journal of Economics & Management Strategy, Vol. 18, Issue 4, pp. 1155-1177, Winter 2009. Available at SSRN: https://ssrn.com/abstract=1492381 or http://dx.doi.org/10.1111/j.1530-9134.2009.00241.x

Markus Reisinger (Contact Author)

Frankfurt School of Finance & Management - Economics Department ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Ludwig Ressner

affiliation not provided to SSRN ( email )

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