Comparative Analysis of Price Elasticity, Demand, and Revenue

This report conducts a comparative analysis of the relationship between price, demand, and revenue, exploring the concept of price elasticity. It investigates how changes in price impact demand and revenue across different industries, drawing on various sources to illustrate these dynamics. The analysis examines how factors beyond price, such as industry-specific characteristics and consumer behavior, influence these relationships. The report discusses real-world examples, including the airline and parking industries, to demonstrate how price elasticity varies. It further explores cases where price increases are implemented due to external factors, such as falling mail volumes, and their impact on demand and revenue. Ultimately, the report concludes that while a drop in price typically increases demand and revenue, exceptions exist, and industry context plays a crucial role in determining the outcome. The report also highlights the importance of strategic price positioning for effective revenue management.

Comparative Analysis

Table of Contents
Introduction......................................................................................................................................3
Interpretation and Analysis of Literature.........................................................................................4
Comparison and Analysis of literature.........................................................................................4
Conclusion.......................................................................................................................................6
References........................................................................................................................................6

Introduction
The mechanism of price, demand and revenue has always been one of the sought after topics in
economics. Businesses invest a number of researches and spend substantial amount of money to
understand the relationship between price, demand and revenue. In most cases a organisations
are focused on developing a strategy which would help them to understand to what extent
revenue and demand will increase if the price falls. Price elasticity is the concept of economics
with which the organisations could understand the change in demand with the little change in
price. Even though it is important for most of the organisations to understand the price elasticity
and its relation with demand and supply it is still an important and complex subject to be
understood by individuals. From the parlance of a neophyte it could be said that naturally if the
price of a firm drops it should increase demands and revenue but it might not happen always as
there are few other aspects which play a crucial role in the management of demand and supply
for organisations (Besbes and Zeevi 2015). Hence the present study will take an opportunity to
address this aspect whether the drop in price always increased demand and revenue or not
through comparative analysis of the sources used in doing the previous assessment of annotated
bibliography.

Interpretation and Analysis of Literature
Price elasticity is considered as one of the key aspects that organisations need to discuss and
reckon while managing their business in order to gain upper hand in the market. Price elasticity
could be defined as the change in percentage of the quantity demanded with the change in
percentage of the price in a given period of time. Apparently it might seem that change or dip in
the price is likely to improve the quantity of demand but it could be said that it might not happen
always. Even though price elasticity and total revenue are interrelated it is not always possible
that price drops and demand increases and revenue as well (Hirschey, 2016). In order to
understand the relationship and the mechanism of both price and demand on revenue it is
important to analyse suitable literature and compare them effectively to get the best possible
result.
Comparison and Analysis of literature
From the perspective of economics when price falls demand rises and when price raises the
demand drops. This is a simple equation which is almost known by many people all across the
world and the business organisations tend to operate effectively based on this aspect. It is
undeniable that low price drives consumers to focus on purchasing more and more of a particular
commodity, but it has been seen in number of cases that rising of prices doesn’t affect the
demand when it should definitely go against the equation and demand should drop. This happens
maybe because the entire industry together have decided to raise the price which clearly shows
that the companies had to reluctantly increase prices and hence it is considered that there will be
no change in the demand even when there is an increase in the price as the entire industry
decides to increase prices and it is no firm to firm competition battle (Hirschey, 2016).
The price demand dynamics is an interesting concept which has been taken into discussion by a
source received from the annotated bibliography. Mumbower, Garrow and Higgins (2014) took
an opportunity to analyse the airline data to understand the price demand dynamics and this has
helped to get significant insights. The analysis by the authors showed that business travelers are
not price sensitive or less sensitive to that of the informal consumers which means the business
travelers are willing to pay the price for comfort whereas the informal consumers are focused on

getting comfort but at an affordable cost. However it has showed that price drop apparently
increases demand. Here it is important to argue that when the price drops the customers are
driven but the quality of service in case of airline will be confined which again will affect the
demand and hence revenue will suffer. Overall it could be said that there is more to demand and
revenue apart from price fall.
The second source used in the annotated bibliography has highlighted the mechanism that goes
into work in the San Francisco parking spaces. Ovchinnikov and Milner (2012) stated that there
is a significant disparity between the parking space allotments of the drivers which is mainly
dependent on the price of parking space. Most of the drivers in this case have suffered looking
for cheap parking space and had to waste their car fuel for this whereas expensive parking space
have been reserved for customers who can afford them and this has left them empty which
clearly shows the disparity that high price and low price could have on the market.
Comparing the above two articles it could be said that when the first source focused on showing
the interest of the consumers to be concerned about price then the second source tried to
understand the disparity that could take place with high price and low price. Both the articles try
to show the price and demand dynamics in the two different industries. In the airline industry it
has been seen that the business customers are less price sensitive whereas on the other hand it
could be said that the expensive car parking remain empty and cheap parking have huge
competition which means that the result if price drops will vary from industry to industry
(Hirschey, 2016).
Source 3 of the annotated bibliography has highlighted the aspect of increasing price due to the
fall in mail volumes. Stuff.co.nz, J. (2017) showed that they had to increase the price of the
services due to the fall in the mail volumes. It is an unusual scenario but it could be said that the
organisation in order to manage the increasing cost of the organisation this decision has been
taken which clearly shows that increasing cost definitely leads to increase in price. This clearly
shows the relationship between price, demand and revenue. On the other hand Source 4 that
mainly talks about price positioning for revenue management has highlighted the fact that clearly
price positioning is an important aspect to get the best result in the form of demand and revenue.
According to the article established by Noone, Canina and Enz (2013) it has showed that price
positioning may fluctuate the performance of the organisation. Comparing both the articles it

could be said that there is a direct link between demand and price when source 3 article increase
the price due to the lack of demand then source 4 emphasised on the fact that it is important to
position price in such a way demand gets increased.
Conclusion
To conclude the comparative analysis it could be said that there is a significant relationship
between price, demand and revenue but the industry plays an important role in this case. It is
undeniable that exceptions could happen with the industrial actions like mass change in price.
For instance if the airline industry focuses on increasing in price even then the demand of the
service will not go down given its importance for the consumers and hence it could be said that if
the price drops demand and revenue will normally rise but there are certain exceptions which
have the potential to change the result.

References
Besbes, O. and Zeevi, A., 2015. On the (surprising) sufficiency of linear models for dynamic
pricing with demand learning. Management Science, 61(4), pp.723-739.
Hirschey, M., 2016. Managerial economics. Cengage Learning.
Mumbower, S., Garrow, L.A. and Higgins, M.J., 2014.Estimating flight-level price elasticities
using online airline data: A first step toward integrating pricing, demand, and revenue
optimization. Transportation Research Part A: Policy and Practice, 66, pp.196-212.
Noone, B.M., Canina, L. and Enz, C.A., 2013. Strategic price positioning for revenue
management: The effects of relative price position and fluctuation on performance. Journal of
Revenue and Pricing Management, 12(3), pp.207-220.
Ovchinnikov, A. and Milner, J.M., 2012. Revenue management with end‐of‐period discounts in
the presence of customer learning. Production and operations management, 21(1), pp.69-84.
Stuff.co.nz, J. (2017). NZ Post prices to rise due to falling mail volumes. [online] Stuff.
Available at: http://www.stuff.co.nz/business/90720902/nz-post-stamp-prices-to-rise-due-to-
falling-mail-volumes [Accessed 15 Aug. 2017].