Complete 9 pages APA formatted article: Pricing Policy in British Industry. Under limit pricing, the mark-up of the price of an average cost is decided by the height of barriers to entry in a market (

Complete 9 pages APA formatted article: Pricing Policy in British Industry. Under limit pricing, the mark-up of the price of an average cost is decided by the height of barriers to entry in a market (Sawyer 2005, pg 99). In both cases, companies do not achieve prices that are predicted by pricing theories due to a lack of information. Instead, predicted prices may be viewed as the desired state that businesses seek to attain due to the fact that such prices would further their objectives for profit maximization. It follows then that actual prices are occasionally above and below the corresponding predicted prices (Sawyer 2005, pg 99).

In his study, Skinner (1970) posited that it was clear that cost-plus pricing is fairly widely used in the British industry. Though the question remains regarding whether the mark-up is modified for changes in demand and in the actions of competitors (Skinner 1970). He argued that although 70 percent of companies claimed to use cost-plus pricing, there was significant emphasis on fixing prices to competition and demand (Skinner 1970).

In their study, Coutts, Godley, and Nordhaus (1978) studied six two-digit level manufacturing industries in Britain and found that a predicted price predicated upon a constant mark-up over normalized costs was highly correlated with actual prices. Though they found that demand factors did not have a significant impact on prices, there was strong evidence that the profit margin declined during the time of the study (Coutts, Godley and Nordhaus 1978).

In a later study, Sawyer (1983) associated changes in price to cost changes of material inputs and of labor and toward demand factors for 40 three-digit industries in the UK. His results suggested that price changes that are relative to cost changes are not significantly influenced by short-run fluctuations in demand (Sawyer 1983).

These studies suggest that output price changes are strongly correlated with changes in input price (Sawyer 2005, pg 101).

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