Short-run maximization of firm profits provides the sole justification for transfers at marginal cost. This conclusion is based, however, on a theory of the firm that ignores precisely those information and agency costs that make transfer pricing necessary. An alternative approach is to...

This paper studies a periodic-review pricing and inventory control problem for a retailer, which faces stochastic price-sensitive demand, under quite general modeling assumptions. Any unsatisfied demand is lost, and any leftover inventory at the end of the finite selling horizon has a salvage...

Monroe Clock Company, a producer of electrical timers, is trying to decide how to price a new device by considering the method of overhead allocation and its impact on the cost of the household timer. The B case can be taught independently or in conjunction with the A case (UVA-C-2228), which...

Using theoretical analysis and simulation experiments, we examine the usefulness of full costs for product pricing. We show that full costs are economically sufficient for pricing when a decision-maker (DM) jointly solves the capacity planning and pricing problems, and has enough discretion in...

This paper demonstrates that for a multi-product firm with fixed costs, full-cost markup rules impose a constraint on the relationship among product prices that may prevent the firm from achieving satisfactory profits even when satisfactory profits are feasible. For any given cost structure and...

Full cost data are irrational for planning and pricing decisions from a microeconomic perspective, but surveys consistently indicate that managers prefer to use full cost data to make pricing decisions. This paper presents a model, called step-ABC, that supplies full cost data but makes users...

The reported cost of a product frequently contains historical cost components that reflect past investments in productive capacity. We examine a setting wherein a firm makes a sequence of overlapping capacity investments. Earlier research has identified particular accrual accounting...

Banker and Hughes (1994) have demonstrated the economic sufficiency of activity-based unit costs for a firm's pricing and capacity decisions under uncertainty. This paper investigates the performance of the corresponding policy in a setting where the firm can adapt to changing demand conditions...

Although neoclassical economic theory predicts that fixed cost magnitude and fixed cost reporting format will not influence short-term pricing decisions, these factors systematically affected pricing decisions in a duopoly experiment. Increasing fixed cost magnitude (a pure sunk cost in this...

Although neoclassical economic theory predicts that fixed cost magnitude and fixed cost reporting format will not influence short-term pricing decisions, these factors systematically affected pricing decisions in a duopoly experiment. Increasing fixed cost magnitude (a pure sunk cost in this...