Abstract

Based on the idea that in real markets firms have some freedom to set their output prices and negotiate input unit costs, this paper introduces a new approach for value efficiency decomposition as the product of direct price and quantity effects. Our framework relies on the axiomatization of a value transformation set on which quantity, price and value distance functions can be defined. The methodology developed allows for various degrees of dependency between quantity and price as well as for different degrees of freedom in price setting. The value efficiency decomposition can encompass all traditional measures such as cost, revenue, profit and profitability efficiencies. An application on French cattle farms illustrates the appeal of our approach for practitioners.

Co-authors : Hervé Leleu  & Raluca Parvulescu

Practical information