The optimality of full-cost pricing: a simulation analysis of the price-adjustment dynamics

Graziano Coller () and Paolo Collini ()

Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, 2015, vol. 26, issue 2, 157-191

Abstract: Full-cost pricing is a widespread practice despite its lack of theoretical support as a profit-maximizing procedure. Previous research on the optimality of full-cost pricing (i.e., its ability to provide profit-maximizing prices) has produced contrasting results. In this paper we discuss the optimality of full-cost pricing through a numerical experiment controlling two factors that may explain some of the inconsistencies in previous studies: the dynamics of the pricing mechanisms and the level of demand variability. We show that, while with static demand full-cost pricing entails virtually no economic loss, the introduction of demand variability means that economic loss increases with variability. The worsening effect on performances of a trend in demand is also discussed. Finally, tactical and list pricing are compared in their ability to cope with frequent demand changes; the results show that the ability of full-cost pricing in driving pricing toward optimal decision is not confirmed when the issue of continuous adjustments to demand is considered. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Simulations; Full-cost; Pricing (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00187-015-0212-3 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jmgtco:v:26:y:2015:i:2:p:157-191

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/187

DOI: 10.1007/s00187-015-0212-3

Access Statistics for this article

Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung is currently edited by Thomas Günther

More articles in Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().