Journal article 453 views
Fixed costs matter even when the costs are sunk
Jurjen Kamphorst,
Ewa Mendys-Kamphorst,
Bastian Westbrock 
Economics Letters, Volume: 195, Start page: 109428
Swansea University Author:
Bastian Westbrock
Full text not available from this repository: check for access using links below.
DOI (Published version): 10.1016/j.econlet.2020.109428
Abstract
How firms set prices is key to understanding markets. Standard economics dictates that the fixed costs of a firm should not affect its prices. Nonetheless, it is common practice for firms to raise their prices after a fixed costs increase. We show that firms are correct in doing so if two ubiquitous...
| Published in: | Economics Letters |
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| ISSN: | 0165-1765 |
| Published: |
Elsevier BV
2020
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| Online Access: |
Check full text
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| URI: | https://cronfa.swan.ac.uk/Record/cronfa68313 |
| Abstract: |
How firms set prices is key to understanding markets. Standard economics dictates that the fixed costs of a firm should not affect its prices. Nonetheless, it is common practice for firms to raise their prices after a fixed costs increase. We show that firms are correct in doing so if two ubiquitous conditions apply: (i) future profits increase in current sales and (ii) firms are liquidity-constrained. |
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| Keywords: |
Sunk costs; Liquidity constraints; Switching costs; Pricing |
| College: |
Faculty of Humanities and Social Sciences |
| Start Page: |
109428 |