Elasticity of Demand and Price Sensitivity Essay

Elasticity of Demand and Price Sensitivity - Essay Example The table, formula or graph do not change when price changes. Demand for a product and the quantity demanded for the same product are two different terms. The former is a relationship and the latter is an amount. (Bromley, 2004). One way of maximisation of revenue is to increase the price of the product. But, in business, elasticity of demand has a major role to play. Increase in prices leads to a decrease in quantity demanded. This concept of sensitivity to price may be effectively put to use by cutting prices and inflating the quantity demanded. The cutting down of prices attracts even the uninterested public to become a part of the market and motivates them to become consumers of the product or service. Hence, the best way of revenue maximisation is price reduction. (Biz/Ed, 2005). Pricing strategies in any type of business is best decided when the owners have a good understanding of the market. They should have first hand information on the relationship between change in price and its consequent impact on the revenue. An analysis on the behaviour of markets will lead to a classification of different market structures. The number of participants in a particular market or industry and the extent to which they participate is the main criteria for classification of markets. (AmosWeb Encyclonimic Web*pedia, 2006). Perfect competition is achieved when there are large number of participants on both sides of the market (buyers and sellers) and no interference by any private or public firm. One of the basic market structures is monopoly which comes from the Greek word "monos" which means one and "polein" which means to sell. In this case, there is only a single seller. This is characterised by a lack of economic competition and lack of substitutes for the good or service provided by the monopolist. (AmosWeb Encyclonimic Webopedia, 2006). Monopolies may be artificially created by government involvement. Or there may be single entry to a resource. Economies of scale or one firm out-competing all other firms constantly are also some reasons for monopolies to exist. Monopolistic competition is the most common market form. Markets for books, clothing, films and service industries in large cities are often monopolies. Selling of bikes is considered as a monopolistic competition. This logic stands because of the presence of a large number of segments in motor bike industry despite the presence of a number of companies producing motor bikes. Each segment is viewed as a different product with each of the segment being lead by one or two major producers. Technology, efficiency and price are the three factors that decide the segment and its type. Hence if we look into the given scenario, we can see that VENOM developed Flexibikes at a much lower cost and were ultimately in a position to rule the new found segment. Bilateral monopoly exists when there is one seller and one buyer in the market. The labor market in such a case is well unionized. Another market structure is the oligopoly which is a market dominated by a small number of sellers called the oligopolist. The term oligopoly is taken from the Greek