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From complexities to the rules of thumb: towards optimisation in pricing decisions

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  • Erkki K. Laitinen

Abstract

This study is arguing that management would benefit in pricing decision from simple rules of thumb more than from complicated models. These rules are easy to use and they provide management with useful support to move towards optimisation and to diminish gap between theory and practice. This paper presents three kinds of rules for pricing decision dealing with multi-product pricing, dynamic pricing and pricing objective function. The rules are adjusted versions of the Amoroso-Robinson rule. The paper also presents survey evidence on pricing decisions in Finnish firms. This evidence is based on a questionnaire responded by 205 firms. Finnish firms tend to use cost-plus pricing and are largely full-cost adopters although many of them report maximising objectives for pricing. Evidence shows that the firms are able and motivated to apply analytical methods for pricing. However, only 22% of the firms have adopted optimisation models in pricing decisions.

Suggested Citation

  • Erkki K. Laitinen, 2009. "From complexities to the rules of thumb: towards optimisation in pricing decisions," International Journal of Applied Management Science, Inderscience Enterprises Ltd, vol. 1(4), pages 340-366.
    • Handle: RePEc:ids:injams:v:1:y:2009:i:4:p:340-366
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    Citations

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    Cited by:

    1. Fjell, Kenneth & Pal, Debashis, 2019. "On repeated myopic use of the inverse elasticity pricing rule," Economics Letters, Elsevier, vol. 175(C), pages 12-14.
    2. Kenneth Fjell & John S. Heywood, 2024. "Myopic use of the inverse elasticity pricing rule by a multiproduct firm," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 23(2), pages 103-111, April.
    3. Laitinen, Erkki K., 2014. "Influence of cost accounting change on performance of manufacturing firms," Advances in accounting, Elsevier, vol. 30(1), pages 230-240.
    4. Graziano Coller, 2018. "L?eterno divario tra teoria e prassi del pricing nel Management Accounting," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2018(2), pages 11-33.
    5. Graziano Coller & Paolo Collini, 2015. "The optimality of full-cost pricing: a simulation analysis of the price-adjustment dynamics," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 26(2), pages 157-191, August.
    6. Kenneth Fjell & Debashis Pal, 2021. "Adjusted repeated myopic use of the inverse elasticity pricing rule," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 20(5), pages 559-565, October.

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