Arbeitspapier
Fixed Costs Matter
According to standard economic wisdom, fixed costs should not matter for pricing decisions. However, outside economics, it is widely accepted that firms need to increase their prices after a fixed cost rise. In this note, we show that a liquidity-constrained firm that maximizes lifetime profits should increase its price after a fixed cost increase, if future profits depend positively on current sales. The reason is that then the optimal price is lower than the one that maximizes the current profit. Because the higher cost necessitates higher current profits to avoid bankruptcy, the firm needs to increase its price.
- Language
-
Englisch
- Bibliographic citation
-
Series: Tinbergen Institute Discussion Paper ; No. TI 2018-095/VII
- Classification
-
Wirtschaft
Market Structure, Pricing, and Design: Monopoly
Production, Pricing, and Market Structure; Size Distribution of Firms
- Subject
-
fixed costs
sunk costs
brand loyalty
switching costs
pricing
- Event
-
Geistige Schöpfung
- (who)
-
Kamphorst, Jurjen
Mendys-Kamphorst, Ewa
Westbrock, Bastian
- Event
-
Veröffentlichung
- (who)
-
Tinbergen Institute
- (where)
-
Amsterdam and Rotterdam
- (when)
-
2018
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Kamphorst, Jurjen
- Mendys-Kamphorst, Ewa
- Westbrock, Bastian
- Tinbergen Institute
Time of origin
- 2018
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