An Empirical Investigation of Factors Affecting the Standardization of Service Pricing - A Case Study of Flexlink

Abstract

Over the last decades, the service sector has increased as a percentage of the economies. This paper analyzes whether service prices can be internationally standardized based on the Purchasing Power Parity (PPP) theory. The findings confirm that the services’ unique features intangibility, inseparability, heterogeneity and perishability (IIHP) complicate standardization, for an international price comparison to be possible. From our models, there is no statistical proof that exchange rate, as the sole price adjustor in PPP, has an effect on pricing. We conclude that there are macro factors in the models, not covered by the PPP theory that acts against an implementation of standardized prices. From the study on Flexlink, a company that assembles and installs transporter systems, it was verified that the sales units regularly use price discrimination, as a result of the markets’ high price elasticity, an adaption to the local markets are necessary in order to be competitive.