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Optimal Experimentation in a Changing Environment.

Abstract:

This paper studies optimal experimentation by a monopolist who faces an unknown demand curve subject to random changes, and who maximizes profits over an infinite horizon in continuous time. We show that there are two qualitatively very different regimes, determined by the discount rate and the intensities of demand curve switching, and the dependence of the optimal policy on these parameters is discontinuous. One regime is characterized by extreme experimentation and good tracking of the pre...

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Publisher:
Blackwell Publishing
Journal:
Review of Economic Studies
Volume:
66
Issue:
3
Pages:
475 - 507
Publication date:
1999-01-01
ISSN:
0034-6527
Language:
English
UUID:
uuid:523c65ed-1389-4f04-acc7-4e3f4b0bf6ac
Local pid:
oai:economics.ouls.ox.ac.uk:14798
Deposit date:
2011-08-16

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