Cost efficiency measurement with price uncertainty: a data envelopment analysis

Data envelopment analysis (DEA) technique is commonly utilized for efficiency assessment in a variety of fields for both theoretical and applicational purposes. In classic cost efficiency measurement models, the input and output data and input prices should be known for each decision-making unit (DMU). However, in real-life markets the input prices are not precisely defined for DMUs. In this paper, we shed light on the fact that fixed prices assumption cannot reflect the reality of situations, because market will force lower prices if greater amounts of a product are purchased. It can be said that discounts are automatically considered in these circumstances. To this end, an innovative idea is considered to modify the classic cost efficiency DEA model in order to investigate the situations of real-life markets. Then, by an empirical example, a comparison between the proposed approach and the classic cost efficiency model is provided.