Introductory microeconomics depicts a demand curve as downward-sloping to the right and either linear or gently convex to the origin. The downwards slope generally holds, but the model of the curve is only piecewise true, as price surveys indicate that demand for a product is not a linear function of its price and not even a smooth function. Demand curves resemble a series of waves rather than a straight line. [1]
The diagram shows price points at the points labeled A, B, and C. When a vendor increases a price beyond a price point (say to a price slightly above price point B), sales volume decreases by an amount more than proportional to the price increase. This decrease in quantity-demanded more than offsets the additional revenue from the increased unit-price. As a result, total revenue (price multiplied by quantity-demanded) decreases when a firm raises its price beyond a price point. Technically, the price elasticity of demand is low (inelastic) at a price lower than the price point (steep section of the demand curve), and high (elastic) at a price higher than a price point (gently sloping part of the demand curve). Firms commonly set prices at existing price-points as a marketing strategy.[citation needed]
Causes
There are three main reasons for price points to appear:
the market grows accustomed to paying a certain amount for a type of product
increasing the price beyond this amount will cause sales to drop dramatically[citation needed]
Perceptual price points (also referred to as "psychological pricing" or as "odd-number pricing")
raising a price above 99 cents will cause demand to fall disproportionately because people perceive $1.00 as a significantly higher price[3]
Oligopoly pricing
In relation to customary price points, oligopolies can also generate price points. Such price points do not necessarily result from collusion, but as an emergent property of oligopolies: when all firms sell at the same price, any firm which attempts to raise its selling price will experience a decrease in sales and revenues (preventing firms from raising prices unilaterally); on the other hand, any firm in an oligopoly which lowers its prices will most likely be matched by competitors, resulting in small increases in sales but decreases in revenues (for all the firms in that market). This effect can potentially produce a kinked demand-curve where the kink lies at the point of the current price-level in the market. These results depend on the elasticity of the demand curve[citation needed] and on the properties of each market.
^Schindler, Robert M.; Kibarian, Thomas M. (1996). "Increased Consumer Sales Response Through Use of 99-Ending Prices". Journal of Retailing. 72 (2): 187–199. doi:10.1016/S0022-4359(96)90013-5.
Further reading
Bner, Alexander (2011). "Price-Dependent Demand". Retail Category Management: Decision Support Systems for Assortment, Shelf Space, Inventory and Price Planning. Springer. ISBN978-3-642-22476-8.
Veeramani, Venkat & Maynard, Leigh (2008). Price Points and Thresholds in Retail Food Demand. VDM Verlag. ISBN978-3-639-08445-0.
April 25, 2023
price, point, this, article, multiple, issues, please, help, improve, discuss, these, issues, talk, page, learn, when, remove, these, template, messages, this, article, factual, accuracy, disputed, relevant, discussion, found, talk, page, please, help, ensure,. This article has multiple issues Please help improve it or discuss these issues on the talk page Learn how and when to remove these template messages This article s factual accuracy is disputed Relevant discussion may be found on the talk page Please help to ensure that disputed statements are reliably sourced May 2010 Learn how and when to remove this template message This article includes a list of general references but it lacks sufficient corresponding inline citations Please help to improve this article by introducing more precise citations January 2014 Learn how and when to remove this template message Learn how and when to remove this template message Price points are prices at which demand for a given product is supposed to stay relatively high Price points A B and C along a demand curve where P is price and Q represents demand Contents 1 Characteristics 2 Causes 3 Oligopoly pricing 4 See also 5 References 6 Further readingCharacteristics EditIntroductory microeconomics depicts a demand curve as downward sloping to the right and either linear or gently convex to the origin The downwards slope generally holds but the model of the curve is only piecewise true as price surveys indicate that demand for a product is not a linear function of its price and not even a smooth function Demand curves resemble a series of waves rather than a straight line 1 The diagram shows price points at the points labeled A B and C When a vendor increases a price beyond a price point say to a price slightly above price point B sales volume decreases by an amount more than proportional to the price increase This decrease in quantity demanded more than offsets the additional revenue from the increased unit price As a result total revenue price multiplied by quantity demanded decreases when a firm raises its price beyond a price point Technically the price elasticity of demand is low inelastic at a price lower than the price point steep section of the demand curve and high elastic at a price higher than a price point gently sloping part of the demand curve Firms commonly set prices at existing price points as a marketing strategy citation needed Causes EditThere are three main reasons for price points to appear Substitution price points price points occur at the price of a close substitute when an item s price rises above the cost of a close substitute the quantity demanded drops sharply 2 Customary price points the market grows accustomed to paying a certain amount for a type of product increasing the price beyond this amount will cause sales to drop dramatically citation needed Perceptual price points also referred to as psychological pricing or as odd number pricing raising a price above 99 cents will cause demand to fall disproportionately because people perceive 1 00 as a significantly higher price 3 Oligopoly pricing EditIn relation to customary price points oligopolies can also generate price points Such price points do not necessarily result from collusion but as an emergent property of oligopolies when all firms sell at the same price any firm which attempts to raise its selling price will experience a decrease in sales and revenues preventing firms from raising prices unilaterally on the other hand any firm in an oligopoly which lowers its prices will most likely be matched by competitors resulting in small increases in sales but decreases in revenues for all the firms in that market This effect can potentially produce a kinked demand curve where the kink lies at the point of the current price level in the market These results depend on the elasticity of the demand curve citation needed and on the properties of each market See also EditConvex preferences Cost the limit of price List of topics in industrial organization PricingReferences Edit Non Linear Demand Curve Microeconomics Analysis Priceo Retrieved 2022 07 27 Price Reform Kokqa Retrieved 2023 03 07 Schindler Robert M Kibarian Thomas M 1996 Increased Consumer Sales Response Through Use of 99 Ending Prices Journal of Retailing 72 2 187 199 doi 10 1016 S0022 4359 96 90013 5 Further reading EditBner Alexander 2011 Price Dependent Demand Retail Category Management Decision Support Systems for Assortment Shelf Space Inventory and Price Planning Springer ISBN 978 3 642 22476 8 Veeramani Venkat amp Maynard Leigh 2008 Price Points and Thresholds in Retail Food Demand VDM Verlag ISBN 978 3 639 08445 0 Retrieved from https en wikipedia org w index php title Price point amp oldid 1143432165, wikipedia, wiki, book, books, library,
