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Monopolists and Viscous Demand

Authors: Radner, Roy
Richardson, Thomas J.
Issue Date: Aug-1999
Publisher: Stern School of Business, New York University
Series/Report no.: IS-99-07
Abstract: We characterize the optimal dynamic price policy of a monopolist who faces "viscous" demand for its services. Demand is viscous if it adjusts relatively slowly to price changes. We show that with the optimal policy the monopolist stops short of achieving 100% market penetration, even when all of the consumers have the same long-run willingness to pay for the service. Furthermore, for certain parameter values in the model, the price policy requires rapid oscillations of the price path.
Appears in Collections:IOMS: Information Systems Working Papers

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