A Note on Optimal Fixed-Price Bidding with Uncertain Production Cost
Volume: Volume 6, No. 2
Issue: Autumn 1975
Pages: pp. 695-697
Authors: Keith C. Brown
Title: A Note on Optimal Fixed-Price Bidding with Uncertain Production Cost
Abstract: Firms often contract to deliver commodities at prices established before production costs are known. If the amount sold is a function of the quoted price, then the expected benefit profit per unit sold is not, in general, the difference between the unit cost estimate and the price quotation, but rather some smaller amount. Even though they may not understand why they are doing so, firms may learn by experience to add an amount to price quotations necessary to compensate for this effect. An understanding of this effect can lead to more optimal pricing procedures.
JEL Classification
Managerial Economics (5120)