Activity-Based Pricing in a Monopoly
In this article, I study the interaction between cost accounting systems and pricing decisions in a setting where a monopolist sells a base product and related support services to customers whose preference for support services is known only to them. I consider two pricing mechanisms-activity-based pricing (ABP) and traditional pricing-and two cost-accounting systems-activity-based costing (ABC) and traditional costing, for support services. Under traditional pricing, only the base product is priced, whereas support services are provided free because detailed cost-driver volume information on the consumption of support services by each customer is unavailable. Under ABP, customers pay based on the quantities consumed of both the base product and the support services because detailed cost-driver volume information is available for each customer. Likewise, under traditional costing for support services the firm makes pricing decisions on cost signals that are noisier than they are under ABC. I compare the equilibrium quantities of the base product and support services sold, the information rent paid to the customers, and the expected profits of the monopolist under all four combinations of cost-driver volume and cost-driver rate information. Copyright 2003 The Institute of Professional Accounting, University of Chicago..
Year of publication: |
2003
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Authors: | Narayanan, V. G. |
Published in: |
Journal of Accounting Research. - Wiley Blackwell, ISSN 0021-8456. - Vol. 41.2003, 3, p. 473-502
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Publisher: |
Wiley Blackwell |
Saved in:
freely available
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