Pricing Decisions in Small Business

Pricing Decisions in Small Business

W. WARREN HAYNES
Copyright Date: 1962
Pages: 164
https://www.jstor.org/stable/j.ctt130j9b3
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  • Book Info
    Pricing Decisions in Small Business
    Book Description:

    These studies, which originated from research on approximately 100 firms earned on at the University of Kentucky under a grant from the Small Business Administration, are an empirical examination of decision making in the small firm. The practices revealed by the investigation have been analyzed within the theoretic framework of managerial economics. The studies make suggestions for improvements that take into account the limited resources of small firms. A third study, Investment Decisions in Small Business by Martin B. Solomon, will be published at a later date.

    Pricing Decisions in Small Business points out that pricing is more flexible but that competition is more limited than economists have assumed. Though he already makes some adjustment of prices according to the market, the businessman could profit from greater flexibility in his thinking, especially in the consideration of relative changes in costs and revenues.

    eISBN: 978-0-8131-6306-2
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. FOREWORD
    (pp. v-vi)
    John E. Horne

    This studyhas been conducted and prepared under the direction of James W. Martin, project director for the University of Kentucky. The research was financed by a grant made by the Small Business Administration, United States Government, under the authority of Public Law 699 (85th Congress).

    Only a limited number of copies of this report have been printed. It is available for reference in any of the Small Business Administration offices throughout the United States or at many reference libraries. Copies of the report also may be purchased directly from the University of Kentucky Press, Lexington, Kentucky.

    Summaries of this...

  3. ACKNOWLEDGMENTS
    (pp. vii-viii)
    W.W.H.
  4. Table of Contents
    (pp. ix-xii)
  5. 1 INTRODUCTION
    (pp. 1-9)

    ONE OFthe central interests of businessmen and economists is the pricing of commodities and services. For the businessman, prices are one of the main determinants of profits and of success or failure. For the economist, prices are at the heart of the mechanism for allocating resources to various lines of production and a central influence on the distribution of income. Thus it is not surprising that a high proportion of the literature of business and economics is concerned with this subject.

    In view of the large volume of material already published,¹ it is desirable to indicate the contribution made...

  6. PART I
    • 2 SOME PRESCRIPTIVE VIEWS ON PRICING
      (pp. 10-23)

      AS A BACKGROUNDfor the case studies, it is desirable to survey some views of previous writers on prescriptions for pricing. Two chief theories of pricing appear in the literature: full-cost pricing and marginalism. Actually the distinctions between them are not so simple. Therefore this chapter concerns itself with defining the variety of viewpoints falling within these categories.

      In thismonograph the expression “full-cost pricing” means pricing at a level covering total costs, including overhead, plus apredeterminedmarkup. The expression “cost-plus pricing” is treated as a synonym. Neither phrase is used to cover cases in which variable markups are...

    • 3 COST AND DEMAND IN SMALL BUSINESS PRICING: THE CASE STUDIES
      (pp. 24-41)

      IT IS NOWtime to turn to the findings of the present research project. This study covers 88 individual companies, with from one or two employees to more than 200. They comprise a great variety of industries, but may be classified as follows:

      The main issue in this chapter and the next is whether these companies follow the precepts of marginalism in pricing or instead follow mechanical formulas, such as full-cost pricing.¹

      The detailed case discussions appear in Part II, which the reader may wish to examine before reading further. Since the case writeups involve considerable subjective analysis the reader...

    • 4 MARGINALISM AND PROFIT MAXIMIZATION IN SMALL BUSINESS PRICING
      (pp. 42-58)

      THIS CHAPTERdeals with two central, interrelated questions about pricing in small business: (1) Do the firms follow the precepts of marginalism in their pricing? (2) Do they attempt to maximize profits?

      Previous studies are in conflict on these issues. Some note management’s ignorance of both the marginalist theory and of the kinds of information required by that theory. Other studies are impressed by the attention management (in some large firms, at least) gives to cost differentiation and market forces as evidence of marginalist tendencies. Some writers emphasize that profits are only one of a set of multiple objectives, while...

    • 5 MARKET STRUCTURE
      (pp. 59-75)

      WE HAVEdemonstrated that in pricing, most of our 88 small firms give considerable attention to market conditions—to the behavior of competitors and to the resultant characteristics of demand. Up to this point, however, we have given little direct attention to these market characteristics and how they come to play on the pricing of individual firms.

      This chapterfollows the orthodox classification of markets in economic theory, fitting the cases into these well-known categories: (1) monopoly, (2) oligopoly, (3) monopolistic competition, and (4) cases approaching pure competition. Because it is difficult to classify some cases into these categories, it...

    • 6 CONCLUSION: THE PRESCRIPTIVE IMPLICATIONS OF THE STUDY
      (pp. 76-86)

      A STUDY OFpricing may aim at a variety of objectives: (1) more complete description of actual company behavior; (2) improvement of the economist’s ability to forecast price changes broadly; (3) improvement of the knowledge of business behavior required for social control; (4) improvement of the ability to predict behavior of the individual firm; and (5) improvement of the internal pricing practices of business itself. The present study stresses the first and last of these objectives.

      The interview approach used in this study contributes to a deeper probing into the details of pricing behavior than is possible in any other...

  7. PART II
    • THE INDIVIDUAL CASE STUDIES
      (pp. 87-146)

      PART II PRESENTSsummaries of the individual case studies, organized by industries or by categories within industries. Space limitations prohibit detailed discussions of all the cases; brief comments on the general findings of some take the place of detailed summaries. Two criteria determine which cases are discussed briefly rather than in detail: (1) repetition of patterns already covered, and (2) uncertainty about the interpretation of the findings.

      The fivenurseries covered by this study have one important common characteristic—they all grow a majority of their own plant materials. Nurseries which buy materials at wholesale would undoubtedly display different characteristics....

  8. INDEX
    (pp. 147-152)