Saturday, November 30, 2013

Mark-up Pricing in Australia

Park et al. (2010) reports the results of a two-part survey by the central bank of Australia, the first conducted from 2004–2006 and involving around 700 firms, and a second survey conducted around 2008 (Park et al. 2010: 7). The firms were selected from all sectors of the Australian economy.

The results from the first survey from 2004–2006 are the most important, and can be seen below:
(1) Mark-up Pricing | 49%

(2) More Demand-focused 45%
(2.a) Market conditions | 25%

(2.b) Competitors’ prices | 11%

(2.c) Level of demand | 4%

(2.d) Customer sets price | 5%
(3) Other | 6%
(Park et al. 2010: 9, Table 2).
If we take the figures as reported, the largest type of price setting behaviour is mark-up pricing at 49%. Furthermore, of those firms that use mark-up pricing, 23% use costs plus a fixed mark-up, and 26% use costs plus a variable mark-up.

However, as in other studies, there are reasons for wondering whether the figure for mark-up pricing is an underestimate.

In some other nations where these kinds of surveys are done, it is often the case that the category of “Competitors’ prices” conceals more mark-up pricing, so that if, say, a further 5% of firms here practice mark-up pricing the total percentage rises to around 54%.

In addition, the category of “other” seems mostly to refer to fixprices set by government regulation which are often mark-up prices are well, so that when this category is added to the original figure, a final estimate for total mark-up pricing may go up to at least 60%.

This is consistent with the other finding that only 25% of firms change prices more than once a month, and that 55% of firms had changed prices once in the past year or not at all (Park et al. 2010: 11).

In Australia, demand-focused prices are largely confined to the agriculture, mining and tourism industries (Park et al. 2010: 9, Table 3), where global demand factors (especially for the first two) are important in determination of prices.

Park, Anna, Rayner, Vanessa and Patrick D’Arcy. 2010. “Price-Setting Behaviour – Insights from Australian Firms,” Reserve Bank of Australia Bulletin (June Quarter): 7–14.

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