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A note on pricing with risk aversion |
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| Authors: | Luca Colombo Paola Labrecciosa |
| Institution: | a Deakin University, School of Accounting, Economics and Finance, Burwood Campus, 221 Burwood Hwy, Burwood, 3125 VIC, Australia b Monash University, Department of Economics, Clayton Campus, Wellington Road, Clayton, 3800 VIC, Australia |
| Abstract: | We consider the pricing problem of a risk-averse seller facing uncertain demand. Demand uncertainty stems from buyers’ valuations being privately observed. By imposing very mild restrictions on the distribution of buyers’ valuations (an increasing generalized failure rate distribution) and the Bernoulli utility function, we show that a risk-averse seller will unambiguously post a lower price than a risk-neutral counterpart. |
| Keywords: | Economics Pricing Risk management Utility theory |
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