ABSTRACT
This chapter examines some of the findings of empirical pricing studies, to see if there are any consistent principles that are applied in practice, and more importantly to suggest ways in which new principles might be introduced in order to satisfy more fully the objectives of firms. Accounting measures suggest a precision in the allocation of costs but in a multi-product firm common costs are often arbitrarily allocated so that the costs of individual products cannot be uniquely defined. The ‘full-cost’ pricing method does not explicitly take account of demand and only by chance will the normal sales volume coincide with the demand at the calculated price. Full-cost pricing is sometimes seen as a convention to enable firms to make satisfactory profits in a world of ignorance and uncertainty. The profit objective of a return on capital will often be expressed as a target figure. The maturity of the product can be important in determining the target.
