What is Demand-Based Pricing

Incumbent firms, potential new entrants, policymakers, and regulatory authorities want to know the commonly used pricing method in the market to which they are associated to use in their decisions and strategies. The most widely used approach to determining the pricing method commonly used in a market in the literature is to analyze the causality relationship between producer and consumer prices. It is accepted that the demand-based pricing method is commonly used in the markets where the change in consumer prices leads the producer prices, and the cost-based pricing method is commonly used in the markets where the change in the producer prices leads the consumer prices. This study examines pricing methods and price indices and discusses the determination of the pricing method commonly used in a market based on the causality relationship between the producer and consumer price indices.