The Near Optimality of Mark-Up Pricing

Howard F Naish

Economic Inquiry, 1990, vol. 28, issue 3, 555-85

Abstract: Mark-up pricing policies result in a loss of profits compared to marginal pricing behavior. These losses, however, are often very small, even for large changes in the money supply. But, by adopting a simple pricing rule, the firm does not have to forecast the future and avoids the informational and computational costs required to determine the profit maximizing price each period. Thus, even if these costs are small, mark-up pricing policies may be optimal, or approximately so, at least for some firms. In a macro model, this is likely to imply large monetary nonneutralities. Copyright 1990 by Oxford University Press.

Date: 1990
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