The Near Optimality of Mark-Up Pricing
AbstractMark-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 nonneutralities. Copyright 1990 by Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 28 (1990)
Issue (Month): 3 (July)
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- van Dalen, Jan & Thurik, Roy, 1998. "A model of pricing behavior: An econometric case study," Journal of Economic Behavior & Organization, Elsevier, vol. 36(2), pages 177-195, August.
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