Friday, July 18, 2014

Some Quantitative Evidence on Cost-based Prices

Mark-up pricing/cost-based pricing theory describes the way in which many businesses set prices on total average unit costs plus a profit mark-up.

Total costs include wages, raw materials and other capital goods costs.

Bloch, Dockery and Sapsford (2004) examine some econometric, quantitative evidence on US prices in the 20th century from 1900 to 2001 (Bloch, Dockery and Sapsford 2004: 530).

Primary commodity prices set on international markets are one important source of inflation in a world where many prices are total average unit costs.

Bloch, Dockery and Sapsford (2004: 543) find that finished goods inflation is very well correlated with wage and primary commodity inflation. Demand-pull inflation is an overrated source of inflation in the real world.

Bloch, Harry, Dockery, A. Michael and David Sapsford. 2004. “Commodity Prices, Wages, and U.S. Inflation in the Twentieth Century,” Journal of Post Keynesian Economics 26.3: 523–545.

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