Benjamin R. Handel

Robust Firm Pricing with Panel Data

Firms often have imperfect information about demand for their products. We develop an integrated econometric and theoretical framework to model firm demand assessment and subsequent pricing decisions with limited information. We introduce a panel data discrete choice model whose realistic assumptions about consumer behavior deliver partially identified preferences and thus generate ambiguity in the firm pricing problem. We use the minimax-regret criterion as a decision-making rule for firms facing this ambiguity. We illustrate the framework’s benefits relative to the most common discrete choice analysis approach through simulations and empirical examples with field data.

Robust New Product Pricing

We study the pricing decision for a monopolist launching a new innovation. At the time of launch, we assume that the monopolist has incomplete information about the true demand curve. Despite the lack of objective information the firm must set a retail price to maximize total profits. To model this environment, we develop a novel two-period non-Bayesian framework where the monopolist sets the price in each period based only on a nonparametric set of all feasible demand curves . Optimal prices are dynamic as prices in any period allow the firm to learn about demand and improve future pricing decisions. Our main results show that the direction of dynamic introductory prices (versus static prices) depends on the type of heterogeneity in the market. We find that (1) when consumers have homogeneous preferences, introductory dynamic price is higher than the static price; (2) when consumers have heterogeneous preferences and the monopolist has no ex ante information, the introductory dynamic price is the same as the static price; and (3) when consumers have heterogeneous preferences and the monopolist has ex ante information, the introductory dynamic price is lower than the static price. Furthermore, the degree of this initial reduction increases with the amount of heterogeneity in the ex ante information.

Self-Control and Demand for Preventive Health: Evidence from Hypertension in India

Self-control problems constitute a potential explanation for the under-investment in preventive health care observed in low-income countries. A commonly proposed policy tool to solve such problems is offering consumers commitment devices. We conduct a field experiment to evaluate the effectiveness of different types of theoretically-motivated commitment contracts in increasing preventive doctor visits by hypertensive patients in rural India. We document varying levels of takeup of the different commitment contracts, but find no effects on actual doctor visits or individual health outcomes. Thus, a substantial number of individuals pay for commitments, but then fail to follow through on the specified task, losing money without experiencing any health benefit. We develop and structurally estimate a pre-specified model of consumer behavior under present bias with varying levels of naivete. The results are consistent with a large share of individuals being partially naive about their own self-control problems: in other words, they are sophisticated enough to demand some commitment, but overly optimistic about whether a given commitment is sufficiently strong to be effective. The results suggest that commitment devices may in practice be welfare diminishing, at least in some contexts, and serve as a cautionary tale about the role of these contracts in the health care sector.