Price-setting mechanism

A price-setting mechanism refers to how the price of a commodity (or price relationship between multiple commodities) is determined by the market.

It is essentially the link between pricing behavior and the underlying physical behavior that affects pricing.

Common examples of price-setting mechanisms are:

  • Marginal cost of production
  • Value in use
  • Substitution value (versus alternatives)
  • Import parity pricing
  • Export net-back pricing

Price-setting mechanisms can be determined either by market forces or by direct, explicit contract terms.

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