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-c onstrained risk-neutral firm facing uncertain demand. It is shown that the optimal price of a price-setting risk-neutral monopolist decreases with dem and uncertainty. With a strictly convex demand function expected profits in crease with uncertainty for a quantity-setting monopolist whereas expected profits decrease for a price-setting monopolist. Furthermore, similar resul ts on the effect of uncertainty are derived for a differentiated goods indu stry.