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Unformatted text preview: _______ ______
By the same token suppose: This says that the current price is too low relative to current demand conditions (encompassed by ) and variable cost
conditions (encompassed by ); the company should raise price. Observe that as the price increases, consumers become
more price elastic which lowers the right hand side of the equation until eventually the equation balances at the optimal
price. In sum:
Of course, the company knows its price and
It can change the price slightly and compute Elasticity by Arc
Suppose that currently:
[ [ Or Recommendation: lower Or Recommendation: raise method [ Or Recommendation: maintain Example: Amazon’s Dynamic Pricing, Priceline Dynamic Pricing While this algorithm doesn’t yield the optimal price per se it does move price in the right direction and is certainly better
than the status quo. Since this algorithm relies on continuously computing price elasticity and price adjustments, it
should not be surprising that internet retailers, “E-tailers” deploy such pricing techniques. For example, Amazon
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This document was uploaded on 01/19/2014.
- Fall '14
- The Land