When the next unit sold costs almost nothing, any price above marginal cost can be a contribution. Marginal Cost Pricing is a tool for full capacities and tight market decisions.
What it is
Marginal Cost Pricing sets the price at the level of marginal cost — the cost incurred by producing one additional unit. It is a short-term price floor, often relevant in capacity peaks, clearance sales or bottleneck decisions.
How it works in practice
- Aviation: last-minute tickets near marginal cost, because an empty seat earns nothing.
- Software: additional licences with near-zero marginal cost enable aggressive terms.
- Heavy industry: residual quantities from large batches are released at marginal cost to keep the plant utilised.
What customers gain
- Access to products at favourable terms in clearance or peak situations.
- Clear advantages for price-sensitive segments.
- Ability to secure volumes at conditions unreachable at list price.
What providers gain
- Full capacity utilisation.
- Contribution to fixed-cost coverage even at low revenue.
- Strategic market-share defence in bottleneck situations.
Where to be careful
- List-price erosion: customers learn to anchor on marginal cost.
- Cross-subsidy: standard business carries the burden of marginal-cost sales.
- Competition law: selling below full cost can be qualified as predatory pricing.
When does the method fit?
Marginal Cost Pricing is an exception instrument, not a business model. It suits clearly delineated residual quantities, capacity peaks or strategic special situations. In standard business, it systematically undermines full-cost coverage and should be consistently avoided there.
Andreas Stauber
Founder & Managing Director, Resilient Value GmbH