A reconsideration of full-cost pricing [Elektronische Ressource] : methodological aspects of marginalism and theoretical explanations of pricing behaviour / vorgelegt von Elmar Nubbemeyer

Elmar Nubbemeyer

Description

AReconsiderationofFull-CostPricingMethodologicalAspectsofMarginalismandTheoreticalExplanationsofPricingBehaviourInaugural-DissertationzurErlangungdesGradesDoctoroeconomiaepublicae(Dr.oec.publ.)anderLudwig-Maximilians-UniversitätMünchen2010vorgelegtvonElmarNubbemeyerReferent: EkkehartSchlichtKorreferent: KennethCouttsDatumdermündlichenPrüfung: 8.November2010Promotionsabschlussberatung: 17.2010cknoAwledgementsThis thesis was written in the years 2007-2010 during my time as a researchand teaching assistant at the Seminar für Theorie und Politik der Einkom-mensverteilung at the Ludwig-Maximilians-Universität München and my stayat the University of Cambridge, UK.First and foremost, I would like to thank my supervisor Ekkehart Schlicht.His trust, universal support and strong interest in my research ideas were cru-cial for the success of this project. He always took time for my requests, in-spired me with countless suggestions and was a great mentor in matters bothacademic and not. Furthermore, I thank Ken Coutts, who invited me to a re-search visit at the University of Cambridge, UK and later agreed to act as mysecondary supervisor. I am very grateful for his generous hospitality and hisinterest in my work. I also want to thank Florian Englmaier, who kindly agreedto act as my third examiner.Many friends and co-workers supported me in the course of this work.

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2010
• Nombre de lectures: 10
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

AReconsiderationofFull-CostPricing
MethodologicalAspectsofMarginalismand
TheoreticalExplanationsofPricingBehaviour
Inaugural-Dissertation
zurErlangungdesGrades
Doctoroeconomiaepublicae(Dr.oec.publ.)
anderLudwig-Maximilians-UniversitätMünchen
2010
vorgelegtvon
ElmarNubbemeyer
Referent: EkkehartSchlicht
Korreferent: KennethCoutts
DatumdermündlichenPrüfung: 8.November2010
Promotionsabschlussberatung: 17.2010This thesis was written in the years 2007-2010 during my time as a research
and teaching assistant at the Seminar für Theorie und Politik der Einkom-
mensverteilung at the Ludwig-Maximilians-Universität München and my stay
at the University of Cambridge, UK.
First and foremost, I would like to thank my supervisor Ekkehart Schlicht.
His trust, universal support and strong interest in my research ideas were cru-
cial for the success of this project. He always took time for my requests, in-
spired me with countless suggestions and was a great mentor in matters both
academic and not. Furthermore, I thank Ken Coutts, who invited me to a re-
search visit at the University of Cambridge, UK and later agreed to act as my
secondary supervisor. I am very grateful for his generous hospitality and his
interest in my work. I also want to thank Florian Englmaier, who kindly agreed
to act as my third examiner.
Many friends and co-workers supported me in the course of this work. My
dear colleagues and friends Roberto Cruccolini and Christoph Stoeckle helped
me in many ways and contributed to a great working atmosphere. Maria Mor-
genroth took care of all administrative tasks and often provided good advice.
I am also indebted to the student helpers at our chair, who did an excellent
job with the oftentimes laborious literature search and related tasks: Regina
Burghart, Fabian Lutz, Sabrina Martin, Veronika Martini and Felix Ward. Jon
Frost did a remarkable job proofreading the manuscript. My friends Tina
Hechinger, Alexander Mahle and Patrick Schenk also helped me, each in their
own way. I am also very grateful to Selwyn College, Cambridge, and in par-
ticular the members of its Middle Combination Room for their kindness and
hospitality during my stay.
I also thank my brother Andreas Limoser, my grandmother Herta Limoser,
and Susi Alt for their support and patience during my eight years of university
education. This work is dedicated to my beloved parents.
2
cknowledgementsA1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.2 On Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.2.1 Marginalism and Neoclassical Price Theory . . . . . . . . . 15
1.2.2 A Typology of Cost-Plus Pricing . . . . . . . . . . . . . . . 16
1.3 The Full-Cost Doctrine and the Marginalist Controversy . . . . . 20
1.3.1 The Beginnings of the Full-Cost Controversy . . . . . . . . 20
1.3.2 The Marginalist Defence . . . . . . . . . . . . . . . . . . . . 25
1.3.3 The Absorption Strategy in Greater Detail . . . . . . . . . . 28
1.3.4 The End of the Full-Cost Pricing Debate . . . . . . . . . . 36
1.4 Further Research on Pricing . . . . . . . . . . . . . . . . 37
1.5 Issues Related to Marginalist Price Theory . . . . . . . . . . . . . . 40
1.5.1 The Realistic Understanding of Marginalist Price Theory . 41
1.5.2 Implicit Marginalism and Friedman’s Defence . . . . . . . 43
1.5.3 Further Problematic Aspects of Marginalist Price Theory . 53
1.6 Methodological Aspects of Marginalist Price Theory . . . . . . . . 60
1.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
2.2 An Overview on Contemporary Cost Accounting Practices . . . . 68
2.2.1 Internal and External Accounting Systems . . . . . . . . . 68
2.2.2 Accounting Cost Classifications . . . . . . . . . . . . . . . 69
2.2.3 Some Stylized Facts on Cost Structures . . . . . . . . . . . 72
2.2.4 A Typology of Management Accounting Systems . . . . . 72
2.2.5 Empirical Evidence on Costing and Pricing . . . . . . . . . 78
3
Maull-CosttPricingryCosting866PriceF2hPrefacee1PrginalistersistenceTheoofandAbsoOnrptionContents13Contents
2.3 The Historical Development of Cost Allocation Practices . . . . . 81
2.3.1 Cost Accounting Before World War I . . . . . . . . . . . . . 81
2.3.2 Government Control and Cost Allocation During World
War I and II . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
2.3.3 The Dissemination and Institutionalization of Cost Allo-
cation Practices . . . . . . . . . . . . . . . . . . . . . . . . . 84
2.3.4 Diverging Developments of Management Accounting in
the 20th Century . . . . . . . . . . . . . . . . . . . . . . . . 86
2.4 The Persistence of Absorption Costing in Management Accounting 90
2.4.1 An Institutional Framework of
Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
2.4.2 Institutional Stabilizers of Cost Allocation Methods . . . . 98
2.4.3 Summary and Outlook . . . . . . . . . . . . . . . . . . . . . 109
2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
3.1.1 Cost-Plus Pricing in Economics and Management Ac-
counting Research . . . . . . . . . . . . . . . . . . . . . . . 115
3.1.2 Uncertainty, Pricing and Cost-Plus Methods . . . . . . . . 120
3.2 The Choice of Cost-Plus Pricing Methods in Monopoly . . . . . . 121
3.2.1 The Neoclassical Approach to Demand Uncertainty . . . . 122
3.2.2 A Behavioural Approach to Pricing and . . . 130
3.3 Choice of Costing Systems under Uncertainty and Competition . 140
3.3.1 The Neoclassical Approach to Demand Uncertainty un-
der Competition . . . . . . . . . . . . . . . . . . . . . . . . 141
3.3.2 The Behavioural Approach to Pricing and Uncertainty
under Competition . . . . . . . . . . . . . . . . . . . . . . . 147
3.4 Summary and Conclusion . . . . . . . . . . . . . . . . . . . . . . . 152
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
4.2 Previous Research on Inflation and Price Dispersion . . . . . . . . 156
4.2.1 Empirical Evidence . . . . . . . . . . . . . . . . . . . . . . . 156
4.2.2 Theoretical Explanations . . . . . . . . . . . . . . . . . . . 158
4
3PInationandCost-PlusricingDisp4Pricing114andyersion,UncertaintPrice154HeuristicsCost-PlusContents
4.3 A Monopoly Model of Cost-Plus Pricing with Inflation . . . . . . 162
4.3.1 Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
4.3.2 Optimal Pricing . . . . . . . . . . . . . . . . . . . . . . . . . 164
4.3.3 Price Dispersion under Mark-Up Pricing on Historical
Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
4.3.4 Pricing Using a Nearly-Optimal Cost-Plus Heuristic . . . . 172
4.3.5 Overview and Interpretation of Results . . . . . . . . . . . 182
4.4 A Model of Imperfect Competition . . . . . . . . . . . . . . . . . . 186
4.4.1 Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
4.4.2 Pricing Using a Nearly-Optimal Cost-Plus Heuristic . . . . 187
4.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
4.A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
5
Bibliography205202Epilogue3.1 The Probability Density Function of u for Different Values of b . . 126
3.2 Prices and Distortions z . . . . . . . . . . . . . . . . . . . . . . . . 138
3.3 Profits and z . . . . . . . . . . . . . . . . . . . . . . . . 139
3.4 Expected Profits and b . . . . . . . . . . . . . . . . . . . . . . . . . 140
4.1 Staggered Cost-Based Prices . . . . . . . . . . . . . . . . . . . . . . 169
4.2 Absolute and Relative Price Variances and Rates of Inflation . . . 171
4.3 The Probability Density Function of z for Different Values of b . . 174
4.4 Expected Prices, Costs and Profit Mark-Ups against Inflation . . . 183
4.5 Absolute Price Variances . . . . . . . . . . . . . . . . . . . . . . . . 184
4.6 Coefficients of Price Variation . . . . . . . . . . . . . . . . . . . . . 185
4.7 Absolute Variances of Individual and Aggregated Prices . . . . . 195
4.8 Standard Price Deviations and Rates of Inflation . . . . . . . . . . 199
6
ListFiguresof1.1 Shares of Full Costing Firms . . . . . . . . . . . . . . . . . . . . . . 38
2.1 Categories of Unit Costs in Mangement Accounting . . . . . . . . 70
2.2 Diffusion Rates of Activity-Based Costing . . . . . . . . . . . . . . 80
7
ofTListablesWhen I first learned about the phenomenon that most firms set their prices
by applying a profit mark-up on full costs, I was sceptical if this topic would
lend itself to a fruitful research question. My doubts were not grounded in
my conviction that the issue was not highly interesting, let alone important.
Rather, I expected that such a vast body of ideas and economic research had
already been done on the subject that there would hardly be any “new land to
conquer”.
With patience, my supervisor Ekkehart Schlicht repeatedly asserted to me
that by and large, there barely exists any mainstream economic research on why
firms use this pricing method and not another, and what economic implications
are entailed by this pricing behaviour. I found it hard to believe him. Given the
importance of a thorough unde