Glossary/Administered Pricing

Glossary | Concepts | Administered Pricing

'House' Definition

Administered pricing refers to the practice where firms set prices based on costs, markups, and strategic goals rather than short-term supply and demand changes. It is common in industries with significant market power, but it can also occur in competitive markets where price stability or cost recovery is prioritized.

Discussion

Heterodox economists argue that administered pricing is widespread, particularly in industries with high fixed costs or market concentration, where firms set prices based on costs and markups for stability and profit. They note it also occurs in competitive markets to simplify pricing and avoid price wars.

Orthodox economists see administered pricing as limited to monopolistic or regulated markets, arguing that competitive pressures typically prevent firms from setting prices independent of supply and demand. They view it as a market distortion that reduces efficiency and causes price stickiness.

References

• Lee, F. S. (1999). Post Keynesian Price Theory. Cambridge University Press.
• Robinson, J. (1969). The Economics of Imperfect Competition. Macmillan.