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Fixed costs matter even when the costs are sunk

Jurjen Kamphorst, Ewa Mendys-Kamphorst, Bastian Westbrock Orcid Logo

Economics Letters, Volume: 195, Start page: 109428

Swansea University Author: Bastian Westbrock Orcid Logo

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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...

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Published in: Economics Letters
ISSN: 0165-1765
Published: Elsevier BV 2020
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URI: https://cronfa.swan.ac.uk/Record/cronfa68313
first_indexed 2024-11-25T14:21:50Z
last_indexed 2025-01-14T14:38:19Z
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spelling 2025-01-14T10:49:27.9529533 v2 68313 2024-11-21 Fixed costs matter even when the costs are sunk 40408e9de92daaa653357f6b40ed66fd 0000-0002-8303-0808 Bastian Westbrock Bastian Westbrock true false 2024-11-21 SOSS 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. Journal Article Economics Letters 195 109428 Elsevier BV 0165-1765 Sunk costs; Liquidity constraints; Switching costs; Pricing 1 10 2020 2020-10-01 10.1016/j.econlet.2020.109428 COLLEGE NANME Social Sciences School COLLEGE CODE SOSS Swansea University Not Required 2025-01-14T10:49:27.9529533 2024-11-21T09:32:53.4420876 Faculty of Humanities and Social Sciences School of Social Sciences - Economics Jurjen Kamphorst 1 Ewa Mendys-Kamphorst 2 Bastian Westbrock 0000-0002-8303-0808 3
title Fixed costs matter even when the costs are sunk
spellingShingle Fixed costs matter even when the costs are sunk
Bastian Westbrock
title_short Fixed costs matter even when the costs are sunk
title_full Fixed costs matter even when the costs are sunk
title_fullStr Fixed costs matter even when the costs are sunk
title_full_unstemmed Fixed costs matter even when the costs are sunk
title_sort Fixed costs matter even when the costs are sunk
author_id_str_mv 40408e9de92daaa653357f6b40ed66fd
author_id_fullname_str_mv 40408e9de92daaa653357f6b40ed66fd_***_Bastian Westbrock
author Bastian Westbrock
author2 Jurjen Kamphorst
Ewa Mendys-Kamphorst
Bastian Westbrock
format Journal article
container_title Economics Letters
container_volume 195
container_start_page 109428
publishDate 2020
institution Swansea University
issn 0165-1765
doi_str_mv 10.1016/j.econlet.2020.109428
publisher Elsevier BV
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Social Sciences - Economics{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Social Sciences - Economics
document_store_str 0
active_str 0
description 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.
published_date 2020-10-01T08:30:35Z
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score 11.323529

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