Price point

Price point

Price points are prices at which demand is relatively high. In introductory microeconomics, a demand curve is downward sloping to the right and either linear or gently convex to the origin. The first is usually true, but the second is only piecewise true, as price surveys indicate that demand for a product is not a linear function of its price and not even a smooth function. Demand curves look more like a series of waves than a straight line.

Points A, B, and C in the diagram are price points. By increasing the price beyond a price point (say to a price slightly above "price point B"), sales volume decreases by an amount more than proportional to the price increase. This decrease in quantity demanded more than offsets the additional revenue from the increased unit price. As a result, total revenue decreases when a firm raises its price beyond a price point. Technically, the price elasticity of demand is low (inelastic) at a price lower than the price point (steep section of the demand curve), and high (elastic) at a price higher than a price point (gently sloping part of the demand curve). It is a common marketing strategy for a firm to set prices at existing price points.

There are 3 main reasons for the existence of price points:
# Substitution price points
#* price points occur at the price of a close substitute
#* when an item's price rises above the cost of a close substitute, the quantity demanded drops sharply
# Customary price points
#* people are used to paying a certain amount for a type of product
#* increasing the price beyond this amount will cause sales to drop dramatically
# Perceptual price points
#* also referred to as psychological pricing or odd-number pricing
#* raising a price above 99 cents will cause demand to fall disproportionally because $1.00 is perceived to be a significantly higher price

See also

*List of topics in industrial organization
*Convex preferences

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Look at other dictionaries:

  • price point — ➔ point1 * * * price point UK US noun [C] ► COMMERCE, MARKETING the price that is chosen for a product, usually when there are several different prices to choose from: »The computer s price point will disrupt the low end notebook computer market …   Financial and business terms

  • price point — price points N COUNT The price point of a product is the price that it sells for. [BUSINESS] No price point exists for the machine yet... The big companies dominate the lower price points …   English dictionary

  • price point — price′ point n. bus the price for which something is sold on the retail market, esp. in contrast to competitive prices …   From formal English to slang

  • price point — noun : the standard price set by the manufacturer for its product * * * n. the price for which something is sold on the retail market, esp. in contrast to competitive prices. * * * price point UK US noun [countable] [singular price point plural …   Useful english dictionary

  • price point — noun a) The price of an item, especially seen as one of a number of pricing options. Our cracker shelves need some things at the 5.99 price point, both an upscale product and a very large size mid range brand. b) A price, viewed as one of a… …   Wiktionary

  • price point — UK / US noun [countable] Word forms price point : singular price point plural price points business the price at which a product is sold in shops …   English dictionary

  • price point — / praɪs pɔɪnt/ noun the exact price for a range of different products which is psychologically important for the customer, since if an article is given a higher price it will discourage sales ● We must have a meeting to determine price points for …   Marketing dictionary in english

  • price point — noun Date: 1900 the standard price set by the manufacturer for a product …   New Collegiate Dictionary

  • price point — n. the price for which something is sold on the retail market, esp. in contrast to competitive prices. * * * …   Universalium

  • Threshold price-point — In economics, a threshold price point is the psychological fixing of prices to entice a buyer. The most common example in the United States is the $??.99 phenomenon e.g. setting the price for a good at $9.99. Though it is effectively ten dollars… …   Wikipedia

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