Marginalism and real world?

Question

what are the arguments for and against ( evidence for and against) marginalist pricing being a close approximate to actual pricing procedures/full cost pricing??

Thx

Answer 1

As I am at home, I cannot easily get citations, however, the area of behavioral economics has validated that even where people do not use marginalist pricing on purpose, they end up using it in practice.

There are two reasons for this. The first is simple. Imagine a group of 100 competitors, 50 use formal pricing and 50 use something else. The 50 who use something else will either see their business volume drop and their profits drop, or they will see their business skyrocket and their profits drop. However, since they are not stupid, just uninformed and having the capacity to mimic superior competitors, they will watch their competitors and mimic them. In doing so, they will behaviorally pick up marginal pricing.

Futher, wonderful data comes to us from the 19th century when large price swings were common. It appears that people were very adaptive to optimum pricing at a time when little knowledge on optimum pricing existed.

Systems tend to seek optimum pricing, bubbles are a form of optimum pricing by the way, just a disfunctional form, and do so quickly. Otherwise, it would be the equivalent of leaving money lying around for anyone to pick up.

No one needs to actually do the formal calculations to get it to work, probably not even one person needs to do it, the system will tend to conform to locally optimum pricing because at least one competitor will see enough variance in their data to make good pricing choices.

People tend to conform to the optimum even where they cannot see the current actions of others. There are interesting minority games out there where people can see everyone's prior moves but not their current activities. Even when you cannot see your current competitors and everyone must cooperate, it appears without signalling people behave cooperatively.