The Evolution of Cost-based Pricing Rules in Britain: An institutionalist perspective

Abstract

This paper illustrates how an institutionalist perspective can help us understand the development of cost-based pricing rules in Britain. It explores the historical development of rule-based procedures, such as absorption costing and the cost allocation systems used by trade associations and government departments in the first half of the last century. The intention is to identify the institutional rationalities that underpinned the evolution of these supposedly 'irrational' practices. A case study of British Printers in the early years of the 20th century illustrates how a rule-based system, collectively designed and built around costing knowledge was used to promote stability and certainty in a chaotic market. Similarly, the cost-based rules introduced and administered by the British Government during the First and Second World Wars were used to control overpricing and profiteering, and hence cost measurement was seen as instrumental in bringing stability and control to a market that was operating in an apparently unacceptable way. In the post-war period, however, similar cost-based pricing rules and cost allocations procedures were implicated in a variety of restrictive practices.