Variable cost

About: Variable cost is a research topic. Over the lifetime, 3623 publications have been published within this topic receiving 87740 citations. The topic is also known as: variable costs.

Entry and Exit Decisions under Uncertainty

Abstract: A firm's entry and exit decisions when the output price follows a random walk are examined. An idle firm and an active firm are viewed as assets that are call options on each other. The solution is a pair of trigger prices for entry and exit. The entry trigger exceeds the variable cost plus the interest on the entry cost, and the exit trigger is less than the variable cost minus the interest on the exit cost. These gaps produce "hysteresis." Numerical solutions are obtained for several parameter values; hysteresis is found to be significant even with small sunk costs.

A New Estimate of Transaction Costs

Abstract: Transaction costs are important for a host of empirical analyses from market efficiency to international market research. But transaction costs estimates are not always available, or where available, are cumbersome to use and expensive to purchase. We present a model that requires only the time series of daily security returns to endogenously estimate the effective transaction costs for any firm, exchange, or time period. The feature of the data that allows for the estimation of transaction costs is the incidence of zero returns. Incorporating zero returns in the return-generating process, the model provides continuous estimates of average round-trip transaction costs from 1963 to 1990 that are 1.2% and 10.3% for large and small decile firms, respectively. These estimates are highly correlated (85%), with the most commonly used transaction cost estimators. How much does it cost to trade common stock? The Plexus Group (1996) estimated that trading costs are at least 1.0-2.0% of market value for institutions trading the largest NYSE/AMEX firms. Such trades account for more than 20% of reported trading volume. Stoll and Whaley (1983) reported quoted spread and commission costs of 2.0% for the largest NYSE size decile to 9.0% for the small decile. Bwardwaj and Brooks (1992) reported median quoted spread and commission costs between 2.0% for NYSE securities with prices greater than $20.00 and 12.5% for securities priced less than $5.00. These costs are important in determining investment performance and "can substantially reduce or possibly outweigh the expected value created by an investment strategy" [Keim and Madhavan (1995)]. This article is based on a portion of the first chapter of David A. Lesmond's dissertation entitled: "Trans

Markets with consumer switching costs

Abstract: Ex ante homogeneous products may, after the purchase of one of them, be ex post differentiated by switching costs including learning costs, transaction costs, or "artificial" costs imposed by firms, such as repeat-purchase discounts. The nonco-operative equilibrium in an oligopoly with switching costs may be the same as the collusive outcome in an otherwise identical market without switching costs. However, the prospect of future collusive profits leads to vigorous competition for market share in the early stages of a market's development. The model thus explains the emphasis placed on market share as a goal of corporate strategy.

Cost Reduction, Competition and Industry Performance

Abstract: In many markets, firms compete over time by expending resources with the purpose of reducing their costs. Sometimes the cost-reducing investments operate directly on costs. In many instances, they take the form of developing new products that deliver what customers need more cheaply. Therefore product development can have the same ultimate effect as direct cost reduction. In fact, if one thinks of the product as the services it delivers to the customer (in the way that Lancaster pioneered), then product development often is just cost reduction.