information:classification
Rationale

Buyers may perceive that cost-plus pricing is reasonable. In some cases, the markup is mutually agreed upon by buyer and seller. For markets that feature relatively similar production costs, companies do not have a dominant strategy. Therefore, cost-plus pricing can offer competitive stability, decreasing the risk of price competition (such as price wars), if all companies adopt cost-plus pricing. The strategy enables price changes to goods and services relative to increases or decreases in the product cost which are simple to communicate and justify to customers. When there is little market intelligence, the use of a cost-plus pricing strategy compensates for the lack of information by setting prices based on actual costs. This method is generally adopted by retail companies such as grocery or clothing stores.