Google

The degree to which demand falls in response to a price increase is significantly affected by market competition. When a firm faces competitors that produce very similar products, its demand is highly sensitive to price changes, as customers have readily available alternatives.

Impact of Competition on Price Sensitivity of Demand

Based on the scenario, how does the entry of this new competitor affect the original company's ability to set its prices? Explain the likely change in consumer response to a price increase by the original company.

Pricing Power in a Changing Market

Consider two products: a newly-released, patented prescription drug for a specific heart condition, and a generic brand of over-the-counter pain reliever. Which of these two products would likely have a demand that is more sensitive to a price increase? Justify your answer by explaining the role of available alternatives for consumers.

Market Structure and Pricing Flexibility

A company that sells a product with many readily available, nearly identical substitutes can significantly increase its prices without experiencing a substantial loss in sales volume.

For years, 'Aero Airlines' was the only carrier offering direct flights between two small cities. Recently, a new budget airline, 'Breeze Flights', began servicing the exact same route. Assuming both airlines offer comparable flight times and service quality, how will the introduction of the new competitor most likely affect the demand for 'Aero Airlines' tickets?

Learn Before

Related