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Value-based performance and its decomposition into direct price and quantity effects

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  • Boussemart, Jean-Philippe
  • Leleu, Hervé
  • Parvulescu, Raluca

Abstract

Based on the idea that in real markets firms have some freedom to set their output prices and negotiate input unit costs, this paper introduces a new approach for value-based performance decomposition as the product of direct price and quantity effects. Our framework relies on the axiomatization of a value transformation set on which quantity, price and value distance functions can be defined. The methodology developed allows for various degrees of dependency between quantity and price as well as for different degrees of freedom in price setting. The value-based performance decomposition can encompass all traditional measures such as cost, revenue, profit and profitability efficiencies. An application on French cattle farms illustrates the appeal of our approach for practitioners.

Suggested Citation

  • Boussemart, Jean-Philippe & Leleu, Hervé & Parvulescu, Raluca, 2022. "Value-based performance and its decomposition into direct price and quantity effects," European Journal of Operational Research, Elsevier, vol. 303(1), pages 298-311.
    • Handle: RePEc:eee:ejores:v:303:y:2022:i:1:p:298-311
    DOI: 10.1016/j.ejor.2022.02.039
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    2. Pastor, Jesus T. & Zofío, José Luis & Aparicio, Juan & Pastor, D., 2023. "A general direct approach for decomposing profit inefficiency," Omega, Elsevier, vol. 119(C).
    3. Kassoum Ayouba & Jean-Philippe Boussemart & Raluca Parvulescu, 2023. "Measuring CO2 emission reduction potential using a cost approach," Working Papers 2023-EQM-02, IESEG School of Management.

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