Price or Quantity Setting Under Uncertain Demand and Capacity Constraints: an examination of the profits

This article considers price formation and quantity setting of a capacity-constrained risk-neutral firm facing uncertain demand. It is shown that the optimal price of a price-setting risk,neutral monopolist decreases with demand uncertainty. With a strictly convex demand function expected profits increase with uncertainty for a quantity,setting monopolist whereas expected profits decrease for a price-setting monopolist. Furthermore, similar results on the effect of uncertainty are derived for a differentiated goods industry