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THE NEAR OPTIMALITY OF MARK‐UP PRICING
Author(s) -
Naish Howard F.
Publication year - 1990
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1990.tb01239.x
Subject(s) - economics , microeconomics , average cost pricing , marginal cost , profit (economics) , rational pricing , variable pricing , macro , pricing schedule , econometrics , capital asset pricing model , computer science , programming language
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 non‐neutralities.