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Pricing and demand estimates

You suddenly realize that your demand estimates might have some uncertainty in them. How might you change the amount of surplus you give to the consumers because of this?

When you do not know the right demand, you cannot set the right price. So, instead of setting the price first, how can you find out the right price when there are some uncertainty in your demand estimate?

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You suddenly realize that your demand estimates might have some uncertainty in them. How might you change the amount of surplus you give to the consumers because of this?
i.e. when you do not know the right demand, you cannot set the right price.
So, instead of setting the price first, how can you find out the right price when there are some uncertainty in your demand estimate?

When a manufacturer faces uncertain demand and selling through a competitive retail market he may wish to support adequate retail inventories by preventing the emergence of discount retailers. In some cases, discounters offer low prices made possible by low probability of being saddled with unsold inventories in the event of slack demand. Full-price retailers are compensated for a higher probability of unsold inventories by a higher retail price when they sell. It is seen that preventing discounting increases the manufacturer's wholesale demand and profits, and under most demand conditions equilibrium inventory holding and consumer welfare increases.

Where oligopolistic manufacturers sell to consumers through competitive retailers in a market with demand uncertainty. There may be a symmetric duopoly model with product differentiation and a perfectly competitive retail market. In the game with unconstrained price competition by retailers, there is retail price dispersion in the market. In the game with resale price maintenance (RPM), manufacturers' profits are higher, retail inventories are at least as high, and total surplus is at least as high. The effect of RPM on consumer surplus is ambiguous. RPM also precludes possible coordination failure between the manufacturers..

Clearance sales are widely used by firms as an inter temporal selling policy, in particular in markets where firms face demand uncertainty and need to choose capacity in advance. Clearance sales consist in charging a high price initially, but then lowering the price in the sales period. High-valuation consumers purchase the good at the high initial price so as to avoid rationing at the low price, while low-valuation consumers wait for the price to drop.
The advent of optical scanning devices and decreases in the cost of computing power have made it possible to assemble databases with sales and marketing mix information in an accurate and timely manner. These databases enable the estimation of demand functions and pricing/ promotion decisions in "real" time. Commercial ...

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