Monday, February 6, 2012

Charging Higher Prices

The New York Times reports that retailers faced with rising input costs are facing raising the prices of their goods to consumers. Here's the problem - how much of a price increase will consumers "accept"? This is where price elasticity comes out of the academic classroom and into the corporate boardroom, and why understanding both consumer behavior and economics will guide firms in their pricing decisions.

Notice in the article linked above that retailers are in essence running controlled experiments in pricing to gauge how consumers react to price increases, not only on the amount of the price increase, but also on the products as well.

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