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Decision: One-Dimensional Prices

In: Price Management

Author

Listed:
  • Hermann Simon

    (Simon-Kucher & Partners Strategy and Marketing Consultants)

  • Martin Fassnacht

    (WHU – Otto Beisheim School of Management, Chair of Marketing and Commerce)

Abstract

This chapter deals with decision-making for one-dimensional prices. In other words, it involves setting a price for one product in one period. Rigid processes such as cost-plus or competition-oriented pricing, which consider only one factor, are in widespread use in practice, but they are not up to the challenges and complexities of price setting. Comprehensive processes take all relevant factors, such as goals, volume effects, costs, and competitive behavior, into account in the price decision. With their help, one can derive general rules for optimal prices. The price in this case is an elasticity-dependent markup on marginal costs. In the case of an oligopoly, the complexity is greater because one must take competitive reaction into account. Signaling can be used to influence such reactions.

Suggested Citation

  • Hermann Simon & Martin Fassnacht, 2019. "Decision: One-Dimensional Prices," Springer Books, in: Price Management, chapter 5, pages 173-208, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-99456-7_5
    DOI: 10.1007/978-3-319-99456-7_5
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