Evidence on the risk-taking of price-setters

Evidence on the risk-taking of price-setters Article

Urbany, JE, Dickson, PR. (1994). Evidence on the risk-taking of price-setters . 15(1), 127-148. 10.1016/0167-4870(94)90034-5

Alternative predictions are tested in examining how managers respond to the risk of changing price. We observe a substantial difference in the way that managers from self-reported volume-oriented and margin-oriented firms respond to a hypothetical problem which assesses risk-seeking in pricing. Particularly interesting is the finding that the goal of gaining customers provided volume priority respondents with a rationale for sticking with a price cut even after they received information that competitors would respond and that demand would be less than expected. Additionally, managers with a volume priority were substantially more risk averse in increasing price even though the price increase problem had the same expected profit outcomes. A significant proportion of the sample appeared to view customers as longer-term assets for which they were willing to give up short-term profit. © 1994.