Working Paper Department of Economics Learning through Price Experimentation Bv a Monopolist Facing Unknown Demand

This paper investigates the question of how much information firms can acquire about the demand for their product when they learn from experience (i.e., from data about past sales and prices). The main issues are whether firms will eventually learn everything about the demand curve and how learning considerations affect the pricing decisions of firms. It is shown that even when the demand is deterministic, strong conditions are required, such as continuity and quasi-concavity of the profit-function, to guarantee that a monopoly will eventually learn all the relevant information about demand. JEL Classification: 026