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Strategic Cost Allocation

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  • Gal-Or, Esther

Abstract

Negative externalities or 'congestion'costs in the utilization of common resources introduce strategic considerations that tie cost allocation rules to competitiveness in external markets. The equilibrium rule for allocating common costs consists of 'profitability'and 'strategic' components. The profitability component dictates that the share of common costs imposed on a product should be inversely related to its relative profitability vis-a-vis other products. The strategic component dictates that the share of common costs should be modified to favor products sold in markets where strategic considerations are of relatively greater importance (i.e., oligopolistic vis-a-vis perfectly competitive markets). Copyright 1993 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 41 (1993)
Issue (Month): 4 (December)
Pages: 387-402

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Handle: RePEc:bla:jindec:v:41:y:1993:i:4:p:387-402

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. Davis, Rex & Tisdell, Clement A., 2001. "Alternative Specifications and Extensions of the Economic Threshold Concept and the Control of Livestock Pests," Economics, Ecology and Environment Working Papers 48381, University of Queensland, School of Economics.
  2. Pizzini, Mina J., 2006. "The relation between cost-system design, managers' evaluations of the relevance and usefulness of cost data, and financial performance: an empirical study of US hospitals," Accounting, Organizations and Society, Elsevier, vol. 31(2), pages 179-210, February.
  3. L. Colombo & P. Labrecciosa & L. Lambertini, 2005. "A Chicken Game of Intraindustry Trade," Working Papers 548, Dipartimento Scienze Economiche, Universita' di Bologna.

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