Netflix Pricing: Analysis of Marketing Strategy in Oligopoly Market

Running head: MICROECONOMICS
Microeconomics
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NETFLIX PRICING
1
Introduction
The market structure of Netflix is oligopoly. It is a public company of America that
mainly delivers subscription-based and internet-based streaming media, contents of television on
internet, film distribution and video content production (Hinterhuber and Liozu 2017). As the
price charged by Netflix for services increased, the company may lose millions of subscribers.
The discussion analyzes current state of marketing strategy of Netflix taking into consideration
different aspects related to marketing strategy.
Analysis
Netflix may lose about 1 million subscribers due to new pricing plan. The company
increased the price of the existing services. As the demand for Netflix service reduced because of
increase in price, the demand for the service can considered to be relatively elastic with respect
to price (Lyons 2016). The effect of marginal cost on individual customer is very negligible.
There will be no such change in marginal cost of the company. Netflix provided popular service
of DVDs in the mail and stream video over the internet at $9.99. The plan has unbundled and
provides only one of services at $7.99 a month. More existing customers of Netflix will shift to
only streaming plans (Nagle and Muller 2017). Hence, the company may avoid postage costs.
The number of DVD only customer will reduce to 800,000 whereas the streaming only customer
will increase to 200,000. The discrimination and price increase may result in loss of subscribers
for the Netflix. Netflix is expecting that 12 million of its users will avail both the plans.
Therefore, the subscription cost will be higher for them. The share price of the company fell to
$169.25. There are many competitors of Netflix in the market such as Apple, Amazon and Hulu
LLC. Whether, the subscribers move to any other service provider or not depends on the type of
subscription offer, price of service (Nagle, Hogan and Zale 2016). The service provided by the