Role of Demand in Markup Pricing

Successful companies differentiate markups according to variations in product demand elasticities. Foreign and domestic automobile companies regularly offer rebates or special equipment packages for slow-selling models. Similarly, airlines promote different pricing schedules for business and vacation travelers. The airline and automobile industries are only two examples of sectors in which vigorous competition requires a careful reflection of demand and supply factors in pricing practice. In the production and distribution of many goods and services, successful firms quickly adjust prices to different market conditions.

Examining the margins set by a successful regional grocery store chain provides interesting evidence that demand conditions play an important role in cost-plus pricing. Table 12.1 shows the firm's typical markup on cost and markup on price for a variety of products. A field

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