Author:
Øksendal Bernt,Sandal Leif,Ubøe Jan
Abstract
We consider explicit formulae for equilibrium prices in a continuous-time vertical contracting model. A manufacturer sells goods to a retailer, and the objective of both parties is to maximize expected profits. Demand is an Itô-Lévy process, and to increase realism, information is delayed. We provide complete existence and uniqueness proofs for a series of special cases, including geometric Brownian motion and the Ornstein-Uhlenbeck process, both with time-variable coefficients. Moreover, explicit solution formulae are given, so these results are operational. An interesting finding is that information that is more precise may be a considerable disadvantage for the retailer.
Publisher
Cambridge University Press (CUP)
Subject
Statistics, Probability and Uncertainty,General Mathematics,Statistics and Probability
Cited by
4 articles.
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