how to run wal mart

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North Carolina State University
S. Margolis

For EC 413: Industrial Organization

How to Run Walmart: Markup Pricing

Markup pricing refers to the pricing acting out in which some measure of require to be paid—unit-direct cost or wholesale require to be paid—is multiplied by some predetermined trusty in order to set a value. So, for example, a retailer may take a sweater through a wholesale price of $30, and apply a markup coefficient of 1.5, to realize a retail price of $45. We efficacy say they “mark it up” ~ dint of. 50% in order to set the retail price. (Although the convention in retailing is to claim such a markup a 33% markup, what one. is to say the markup is 33% of the retail price.)

Most of you have in likelihood been exposed to markup pricing in some form. In retailing it is extremely universal, at least as a way of obtaining ~y initial “asking” price. Often, however, in the manner that the prices of slow-selling wares are cut, actual pricing departs from the initial markup rule. Markup pricing is such common, in fact, that when students in the beginning come to the pricing solutions in household economy, which derive price according to MR=MC rules, they hold difficulty reconciling those results with their experiences. They paucity to argue, or do argue, that “this is not how it’s done.” And in some important sense, they’re right.

Notice that a single one price could be interpreted, after the performance, as a markup price. That is, we be possible to always take the price, divide it ~ dint of. marginal cost or some proxy in opposition to marginal cost, and come up with a “markup ratio.” That is, admitting that price is $20 and marginal cost is $10, we can compute that the markup fixed relation or markup coefficient is 2. Furthermore, such a price, if profit maximizing, would adjust to both the MR=MC decide as well as the markup establish that is derived in the handout.

So it would have the appearance that the statement “retailers use markup pricing” is unfilled. How could they not? Every value is a “markup price.”

What we indeed mean by markup pricing is the habitual performance of generating prices for some tolerant class of...

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