1---
 2meta: 
 3  date: false
 4  reading_time: false
 5title: "Mark-up - Definition and Meaning"
 6date: 2023-10-05
 7description: "The excess of the selling price of a product over the cost of making or buying it."
 8tags: ["economics", "pricing", "profit margin"]
 9---
10
11## Background
12
13Mark-up refers to the difference between the selling price of a product and the cost of producing or procuring it. It represents not only the profit margin the company aims to achieve but also must account for covering overhead and operational costs.
14
15## Historical Context
16
17The concept of mark-up has been present in commerce since the early days of trade and barter. As markets evolved, and goods transitioned from simple trade items to complex products, the importance of setting appropriate mark-up rates grew substantially. During the Industrial Revolution, the increase in production outputs made pricing strategies, including mark-ups, indispensable for maintaining profitability.
18
19## Definitions and Concepts
20
21Mark-up is fundamentally a measure used by businesses to set the price of their products or services, ensuring all costs are covered and providing a residual profit. Particularly, it involves:
22
23- **Cost Price:** The expense incurred to produce or procure a product.
24- **Selling Price:** The price at which the product is sold to consumers.
25- **Overhead Costs:** Indirect costs like rent, utilities, and salaries that must be factored into the product's selling price.
26- **Profit Margin:** The portion of the mark-up that translates directly into profit for the firm.
27
28## Major Analytical Frameworks
29
30### Classical Economics
31
32In classical economics, supply and demand drive pricing. The mark-up typically reflects supply costs accurately and strives for market equilibrium.
33
34### Neoclassical Economics
35
36Neoclassical economics extends this principle but adds a keen analysis of marginal utility and consumer demand, contemplating how mark-up can influence production choices and competitive prices.
37
38### Keynesian Economics
39
40Mark-up pricing in Keynesian economics emphasizes how firms may adjust prices based on aggregate demand constraints and monetary influences within the economy.
41
42### Marxian Economics
43
44Marxian economics discusses profit realization and capital accumulation, including how the surplus value (mark-up) appropriated from labor affects pricing in capitalist production.
45
46### Institutional Economics
47
48Institutional economics takes into account how market structures, corporate governance, and economic policies influence mark-up strategies, noting the role of institutions in setting up monopolistic or oligopolistic markets where mark-up may be controlled.
49
50### Behavioral Economics
51
52Behavioral economics evaluates how psychological factors and cognitive biases impact consumer willingness to pay, thus affecting optimal mark-up strategy precision.
53
54### Post-Keynesian Economics
55
56This perspective considers how different market power within industries affects pricing strategies, leveraging mark-up as a reflection of monopolistic trends and income distribution challenges.
57
58### Austrian Economics
59
60Austrian economics emphasizes the role of the entrepreneur in mark-up decisions, scrutinizing how knowledge, judgment, and opportunity costs shape pricing.
61
62### Development Economics
63
64Development economics examines how mark-ups can shift in developing regions due to factors like market access, local cost variations, and international trade policies.
65
66### Monetarism
67
68Given Monetarism's focus on monetary supply and inflation, it looks at how inflation affects cost structures, impacting mark-up adjustments necessary to maintain real profit levels.
69
70## Comparative Analysis
71
72A comparative analysis over time and across different industries can highlight the evolving nature of mark-up rates and their impact on corporate profitability and market competitiveness.
73
74## Case Studies
75
76Analyse case studies of firms with successful mark-up strategies and those that failed, observing patterns and methodologies implemented.
77
78## Suggested Books for Further Studies
79
80- "The Strategy and Tactics of Pricing" by Thomas Nagle and Georg Muller.
81- "Cost Accounting: A Managerial Emphasis" by Horngren, Datar, and Rajan.
82- "Price Theory" by Milton Friedman.
83- "Principles of Economics" by Alfred Marshall.
84
85## Related Terms with Definitions
86
87- **Profit Margin:** The amount by which revenue from sales exceeds costs in a business.
88- **Cost-Plus Pricing:** A method in which a fixed percentage is added to the cost of a product to determine its selling price.
89- **Break-even Point:** The level of sales at which total revenues equal total costs, resulting in no profit or loss.