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Type Journal Article
Scope Discipline-based scholarship
Title The impact of cost based pricing rules on capacity planning under uncertainty
Organization Unit
Authors
  • Robert Göx
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Journal Title Schmalenbach Business Review (sbr)
Publisher Schmalenbach-Gesellschaft für Betriebswirtschaft
Geographical Reach international
ISSN 1439-2917
Volume 53
Number 3
Page Range 197 - 228
Date 2001
Abstract Text This paper analyzes the efficiency of three simple cost-based pricing heuristics in a twoperiod capacity planning model with uncertain demand. All policies start with full cost introductory prices but differ in second-period pricing. Under “adaptive full-cost pricing”, the firm updates second-period prices on the basis of current demand conditions and full unit costs. Under “wait-and-see pricing”, the firm sets second-period prices on the basis of updated demand information and current opportunity cost of capacity. Under “myopic fullcost pricing”, prices remain constant for both periods. Although we identify one special case for which all three heuristics replicate the optimal solution, we find that “wait-and-see pricing” dominates “adaptive full-cost pricing”, which dominates its ‘myopic’ counterpart. However, we also discuss factors that may justify the use of ‘full-cost pricing’ in real-world planning environments. We note that if the firm faces significant information and/or communication costs, or if price changes will probably only occur in the far future, even the simple “myopic full-cost pricing” heuristic may be a reasonable policy.
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Official URL http://www.sbr-online.de/pdfarchive/zs/zs_sbr_2001_july-197-228.html
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