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Management Applications of Accounting ACC 5301 DB V Reply 2
Post 1: Initial post addressing the discussion board topic is due by the end of day on Saturday.
• Your response post should be at least 250 words in length.
• Your response post should include at least one APA-formatted scholarly, professional, or textbook reference with accompanying in-text citation to support any paraphrased, summarized, or quoted material.
I think there should be rules or standards for setting prices, but only in certain situations. When there is a big difference in the amount of information available to buyers and sellers, or when a few companies have a lot of market power, letting prices go up can hurt customers. Galenianos and Gavazza (2022) demonstrate that in the credit card market, numerous consumers receive multiple offers but scrutinize only a few, allowing lenders to impose elevated and highly variable interest rates. Regulatory limits on interest rates in these markets made lenders less powerful and better for consumers. Other studies have also shown that consumers often make bad choices when there are no rules in place to protect them, which shows how important it is to step in (Campbell, 2006). In these situations, unregulated pricing can lead to unfair results for consumers who aren’t as well-informed or aren’t paying attention, which shows that just having a free market doesn’t mean that it will be fair or efficient.
In markets where companies can clearly set prices based on their costs, free pricing helps resources be used more efficiently. Cost-volume-profit analysis, activity-based costing, and customer profitability assessments are all examples of managerial accounting frameworks that help businesses set prices that reflect their actual costs plus a fair profit based on demand, volume, and risk (Jiambalvo, 2020). These tools help businesses stay competitive while paying for fixed and variable costs and rewarding efficiency in operations. Prices usually show both value and cost structure when markets are competitive and information is clear. In these situations, putting in place random price controls can lower investment, innovation, or product quality, which hurts both consumers and businesses (Horngren et al., 2019).
Regulation should be used carefully in these two very different situations. It is acceptable in markets that are complicated, not very clear, where consumers aren’t paying attention, or where power is very concentrated. On the other hand, letting businesses set their own prices for simple, clear goods or services in competitive markets encourages efficiency, new ideas, and fair competition. This nuanced approach strikes a balance between protecting consumers and giving businesses incentives to do the right thing. It makes sure that interventions are focused and effective without hurting the economy’s efficiency.
References
Campbell, J. Y. (2006). Household finance.
The Journal of Finance, 61(4), 1553–1604.
Galenianos, M., & Gavazza, A. (2022). Regulatory interventions in consumer financial markets: The case of credit cards.
Journal of the European Economic Association.
Horngren, C. T., Datar, S. M., Rajan, M. V., & Maguire, W. (2019).
Cost accounting: A managerial emphasis (16th ed.). Pearson.
Jiambalvo, J. (2020).
Managerial accounting (7th ed.). Wiley.
