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Average-cost pricing: Some evidence and implications

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  • Altomonte, Carlo
  • Barattieri, Alessandro
  • Basu, Susanto

Abstract

We present new survey evidence on pricing behavior for more than 14,000 European firms, and study its macroeconomic implications. Among firms that are price setters, roughly 75% respond that their prices are set as a markup on total costs, a business practice termed “full cost pricing”. Only 25% set prices as markups over variable or marginal costs. Moreover, using industry data for the U.S., we find that the correlation between changes in output prices and changes in variable input prices is significantly lower when fixed costs are likely to be more important.

Suggested Citation

  • Altomonte, Carlo & Barattieri, Alessandro & Basu, Susanto, 2015. "Average-cost pricing: Some evidence and implications," European Economic Review, Elsevier, vol. 79(C), pages 281-296.
    • Handle: RePEc:eee:eecrev:v:79:y:2015:i:c:p:281-296
    DOI: 10.1016/j.euroecorev.2015.08.003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Denis Claude & Mabel Tidball, 2022. "Taking firms’ margin targets seriously in a model of competition in supply functions," Working Papers hal-03548797, HAL.
    2. Paweł Gajewski & Grzegorz Tchorek, 2017. "What drives export performance of firms in Eastern and Western Poland?," European Planning Studies, Taylor & Francis Journals, vol. 25(12), pages 2250-2271, December.
    3. Ronald B. Larson, 2019. "Promoting demand-based pricing," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 18(1), pages 42-51, February.
    4. Larson, Ronald B., 2017. "Selling Demand-Based Pricing," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259135, Agricultural and Applied Economics Association.
    5. Philippe Choné & Laurent Linnemer, 2022. "A Class of Behavioral Models for the Profit-Maximizing Firm," CESifo Working Paper Series 9718, CESifo.
    6. Stéphane Dupraz, 2024. "A Kinked‐Demand Theory of Price Rigidity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(2-3), pages 325-363, March.

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    More about this item

    Keywords

    Marginalist controversy; Full cost pricing; Amplification mechanisms;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics

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