Pricing

PRICING OBJECTIVES IN LARGE COMPANIES

By ROBERT F. LANZILOTTI*

The recent sharpened interest of the Kefauver Committee" in administered prices and inflation has focused attention once again on the inadequate state of knowledge of the price-making process.[1] In particular, more empirical information is needed with respect to (a) the motivational hypothesis of the firm, i.e., the specific objectives upon which business firms base pricing decisions, and (b) the mechanics of price formulation. This article is addressed to the first problem; it will present some data on pricing objectives of the firm which have been developed in the course of a general study of pricing policies and practices of large industrial corporations.

I. Scope of Present Study

The procedure followed involved the postprandial variety of research. Lengthy interviews were undertaken with officials of twenty companies over periods ranging up to about one week in most cases.[2] A second set of interviews was undertaken several years later to fill in gaps in the data and to ascertain if any changes had been made in price policy since the original interviews. Pricing obviously being a sensitive area, some officials did not care to discuss their policies except in general terms, but these persons paved the way to individuals who were more willing and, in some cases, more aware of the practices employed and reasons for them.

The questions were designed to elicit information concerning: (1) whether any formal or informal commercial goals had been adopted by the corporation; (2) the procedures employed for implementing and evaluating the goal; (3) the techniques of price determi-

* The author is associate professor of economics at the State College of Washington. He is indebted to J. B. Dirlam and R. I. Thayer for helpful criticism and many substantive suggestions. This article is an outgrowth of work on a Brookings Institution study on Pricing in Big Business by A. D. H. Kaplan, J.B....