How can a firm reduce its products price elasticity of demand?
Before explaining how a firm can reduce it product’s price elasticity we must understand why a firm would want to do such a thing, and the answer is simple a firm can maximize its profits by increasing the price on inelastic goods because an Increase in price will cause a relatively smaller decrease in quantity demanded thus leading to higher total revenue. Generally inelastic goods tend to be necessities such as; food, water, electricity ect so when price increases demand will more or less remain the same because people cannot do without food or water (or will consume less of them in the extreme). The task of a firm is to make their good more inelastic by reducing the amount and closeness of substitutes and this could occur in many ways such as; Product differentiation – this is a marketing process that identities the differences between products. Differentiation looks to make a product more attractive by contrasting its unique qualities with other competing products. Branding – Firms
