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Unformatted text preview: s quite different from “predatory pricing,” incidentally, in which a large firm sets its prices below full cost
in an effort to drive smaller firms out of the industry.) Similarly, a firm may price one product below full cost to increase its sales, which may lead to the sale of other products at prices set well above full cost. Hewlett-Packard, for
example, may sell its printers at or below full cost in an effort to maximize printer sales. Once consumers have
printers, they will purchase toner cartridges and paper, which is where the company earns most of its profits. Of
course, if a firm is to deliberately price below full cost, it must have a good understanding of its costs. Thus cost
information remains an important ingredient in price setting. Copyrighted Material. Do not reproduce without written permission.
Cost-Plus Pricing. An important variant of pricing based on full cost is cost-plus pricing. With cost-plus
pricing, the purchaser of an organization’s products or services agrees to pay full cost plus an agreed-upon increment, usually a percentage. Many government con...
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- Spring '14