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Wholesaler Markup Decisions Under Demand Uncertainty

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  • Timothy PARK
  • Luanne LOHR

Abstract

We examine consistency with economic theory of markup decisions for a risk averse firm facing demand uncertainty. We derive testable comparative static results that describe the influence on the markup of expected demand, demand uncertainty, average variable costs and exogenous demand shifters. We test the model using data from the wholesale market for organic lettuce. Our results demonstrated that risk averse wholesalers raise markups as expected demand increases and reduce them as uncertainty increases.

Suggested Citation

  • Timothy PARK & Luanne LOHR, 1996. "Wholesaler Markup Decisions Under Demand Uncertainty," Faculty Series 96-13, University of Georgia, Department of Agricultural and Applied Economics.
    • Handle: RePEc:wop:geaafs:9613
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    References listed on IDEAS

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    1. Rosenthal, Robert W., 1993. "Bargaining rules of thumb," Journal of Economic Behavior & Organization, Elsevier, vol. 22(1), pages 15-24, September.
    2. Fraser, Robert W, 1985. "Uncertainty and the Theory of Mark-up Pricing," Bulletin of Economic Research, Wiley Blackwell, vol. 37(1), pages 55-64, January.
    3. Rob Fraser, 1995. "An Analysis Of The Role Of Uncertainty In The Marketing Of Perishable Products," Journal of Agricultural Economics, Wiley Blackwell, vol. 46(2), pages 233-240, May.
    4. Timothy A. Park & Luanne Lohr, 1996. "Supply and Demand Factors for Organic Produce," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 647-655.
    5. Hey, John D, 1983. "Whither Uncertainty?," Economic Journal, Royal Economic Society, vol. 93(369a), pages 130-139, Supplemen.
    6. Leland, Hayne E, 1972. "Theory of the Firm Facing Uncertain Demand," American Economic Review, American Economic Association, vol. 62(3), pages 278-291, June.
    7. James A. Chalfant & Richard S. Gray & Kenneth J. White, 1991. "Evaluating Prior Beliefs in a Demand System: The Case of Meat Demand in Canada," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(2), pages 476-490.
    8. Jennifer Morgan & Bruce Barbour, 1991. "Marketing organic produce in New Jersey: Obstacles and opportunities," Agribusiness, John Wiley & Sons, Ltd., vol. 7(2), pages 143-163.
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    Cited by:

    1. Markus Pasche, 1997. "Markup Pricing and Demand Uncertainty," Working Paper Series B 1997-08, Friedrich Schiller University of Jena, School of of Economics and Business Administration, revised 01 Jun 1998.

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