The Role of Internal Pricing Within Companies

2097 Words8 Pages
The role of internal pricing within companies is to strengthen them internally and to make the profits increase. This approach works if the company can make more profits internally rather than going outside into the marketplace. For example, according to Jerry Ellig's 2001 "Internal Markets and the Theory of the Firm," companies are replacing bureaucratic internal resource allocation with internal markets by as if the company is a club membership rather than a structured environment. "Members join the firm and pay its membership fee when the value of the local public goods they receive exceeds the opportunity cost of joining. Some of the most important public goods provided by firms are variously referred to as organizational capabilities, competencies, or routines. These can often be characterized as public goods because they are ultimately based on knowledge, and hence involve a degree of nonrival consumption. A firm survives when its internal environment generates value-creating capabilities, competencies, and routines. The firm will continue to exist as long as the owners of its human and physical capital find it more profitable to transact inside this environment than outside" (Ellig, 2001). Therefore, if the company can make more profits internally rather than going outside, it can survive and it will help to enhance them in the long run. Furthermore, there are some firms that believe there are more profits in internal marketing than going to the outside market. It
Open Document