Price Elasticity of Demand: Mercedes Cars

This essay examines the price elasticity of demand for Mercedes-Benz cars, considering several key factors. It argues that the availability of substitutes like Porsche and Jaguar significantly impacts elasticity. Because Mercedes' target market possesses substantial disposable income, price reductions may not significantly increase demand; instead, consumers might opt for even more expensive alternatives. The time period for adjustment is also crucial; an initial price reduction might attract buyers, but long-term effects could see a shift towards higher-priced competitors, potentially harming Mercedes' brand image as the ultimate luxury car. The essay concludes by referencing relevant academic works on price elasticity and consumer behavior.

Factors Affecting Price Elasticity of Demand and Mercedes Cars
Availability of Substitutes
Mercedes’ luxury cars have other substitutes in the market such as Porsche, Jaguar, Maserati,
and others. In this case, if the price of the Mercedes’ cars is reduced to gain the market share,
then it can be clearly stated that Mercedes will be at loss. The reason is its target customers who
prefer high class branded products that are of exceptional price levels and who prefer to flaunt
expensive products. Therefore, reduction in Mercedes’ price will divert these customers towards
more expensive aforementioned alternatives that can provide them high class image and
reputation (Andersen et al, 1997).
Percentage of Consumer’s Budget
The consumers of Mercedes have substantial budget for luxurious products and, therefore, it
cannot be suggestive to state that the reduction in price would attract their attention towards
Mercedes. The initial euphoria can be there as some consumers might see it as achievement to
possess Mercedes. However, those who understand they can easily afford such cars and similar
others – who being the main target consumers – would rarely prefer to orient towards Mercedes.
Time Period of Adjustment
For this factor, it can be stated that initially the reduction in price of Mercedes cars will attract
numerous buyers who had desire to ride the vehicle and even the high class consumers who can
easily afford the other luxurious cars would prefer to keep one Mercedes brand at that time.
However, it is possible that Mercedes might lose its shine of being costliest car brand as the main

target audience will gradually shift to more expensive cars such as Jaguar or Maserati (Mowen,
1988).
References
Anderson, P. L., McLellan, R. D., Overton, J. P., & Wolfram, G. L. (1997). Price elasticity of
demand. Makinac Center for Public Policy, 13.
Mowen, J. C. (1988). Beyond consumer decision making. Journal of Consumer Marketing, 5(1),
15-25.