Dynamic and static pricing in open-book accounting

Abstract

PurposeThe purpose of this paper is to understand differences between open-book accounting (OBA) using static prices and OBA using dynamic prices. The authors identify how these differences influence various aspects of customer–supplier relationships.Design/methodology/approachThis paper is based on a case study involving a builders’ merchant and a wood manufacturer in the UK. The builders’ merchant under discussion has recently outsourced part of its production to the aforementioned wood manufacturer by using OBA with dynamic prices. For this case study, the authors have conducted interviews with multiple people from both parties in the agreement. Additional illustrative cases are provided through a study of other qualitative papers on OBA.FindingsThe authors find evidence supporting that, when dynamic prices are used in OBA, risk (unpredictability) is shifted from the supplier to the customer. Also, the customer frequently focuses on the supplier’s costs, both parties often aim for a long-term relationship and the customer becomes more dependent on the supplier, causing high interdependence. Furthermore, empirical evidence suggests that the customer finds price less important, and the reallocation of activities between the customer and supplier is easier in OBA setups in which dynamic prices are used.Originality/valueThis paper provides the first study of how differences between dynamic and static prices in OBA influence the customer–supplier relationship. This paper adds to the developing literature on OBA, in particular, as well as to literature on pricing, in general.