(PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.
File:Price elasticity of demand.svg
VALUE
Descriptive Terms
Ed = 0
Perfectly inelastic demand
- 1 < Ed < 0
Inelastic or relatively inelastic demand
Ed = - 1
Unit elastic, unit elasticity, unitary elasticity, or unitarily elastic demand
- ∞ < Ed < - 1
Elastic or relatively elastic demand
Ed = - ∞
Perfectly elastic demand
Elasticities of demand are interpreted as follows
http://upload.wikimedia.org/wikipedia/commons/thumb/9/99/Elasticity-inelastic.png/220px-Elasticity-inelastic.pnghttp://upload.wikimedia.org/wikipedia/commons/thumb/8/89/Elasticity-elastic.png/220px-Elasticity-elastic.png
PED V/S Total Revenue:-
http://upload.wikimedia.org/wikipedia/commons/thumb/1/1c/Price_elasticity_of_demand_and_revenue.svg/215px-Price_elasticity_of_demand_and_revenue.svg.png
As a result, the relationship between PED and total revenue can be described for any good:
When the PED is perfectly inelastic (Ed = 0), price change do not affect the demand; price hike will increase total revenue.
When the PED is relatively inelastic (|Ed| < 1), percentage change in demand is smaller than that in price. Hence, rise in price will make the total revenue to raise, and vice versa.
When the PED is unit (or unitary) elastic (|Ed| = 1), percentage change in demand is equal to that in price, so a price change will not affect total revenue.
When the PED is relatively elastic (|Ed| > 1), percentage change in demand is greater than that in price. Hence, hike in price will make total revenue fall, and vice versa.
When the PED is perfectly elastic (Ed is infinite), any price increase, no matter how small, will make demand to zero. Hence, when the price is raised, the total revenue turns to zero.
OLIGOPOLISTIC MARKET STRUCTURES:-
The market structure for airlines is an oligopoly. An oligopoly is determined by a relatively small number of firms offering a product or service. The product or services may be differentiated as in automobiles, televisions, and athletic shoes or relatively undifferentiated as in oil, aluminium, and cement. The distinguishing characteristics of oligopoly is that the number of firms in the industry is small enough that actions by any individual firm in the industry on price, output, product style or quality, introduction of new models and terms of sale have a perceptible impact on the sales of other firms in the industry. Thus, the distinctive feature of oligopoly is the recognizable interdependence among the firms in the industry. Each firm is aware in its decision making that any new move, such as introducing a price cut or launching a large promotional campaign, is likely to evoke a countermove from its rivals.
In oligopoly markets like soft drinks, cereals, and airlines, rival response expectations are therefore the key to firm-level analysis. If rival firms match price increases and price cuts, a share-of-the market demand curve may characterize adequately the sales response to an oligopolist's pricing initiatives. If rivals firms are slow to match price increases and cuts, oligopolist's may be tempted to discount to gain share and will lose share or price hikes. In some makes like I-beam steel, rivals match price cuts but ignore price hikes.
MARKET STRUCTURE OF AIRLINE INDUSTRY:-
Market Structure
Seller Entry Barriers
Seller Number
Buyer Entry Barriers
Buyer Number
Perfect Competition
No
Many
No
Many
Monopolistic competition
No
Many
No
Many
Oligopoly
Yes
Few
No
Many
Monopoly
Yes
One
No
Many
RECOMMENDATIONS
PRICING POLICIES
Free tickets:-
In the off peak season when the schools are closed and passengers are very less then at that time the seat which is going to fly empty without any revenue generating is a perishable thing can be sold either at very less price or may be for free. The tickets can be sold as "For free" exclusive of all taxes or seat for free and pay for the food or toilet. If is a domestic flight give the ticket as free without the cargo load just with the handbag only.
The early you book the cheaper you get:-
Flight booking which is done far in advance can be given a discount of up to 50% like if the booking is done before six months and 25% if it is done three months before and so on. You can have the interest for that money for that period of time.
Online booking and cancellation:-
No fees will incur on booking a ticket online and full refunds for the business class anytime up to before 2hours from the departure of flight.
NON-PRICING STRATEGIES
Common Lounge:-
Passengers of any of the Trans-Tasman can use either of the flights lounges at airport.
Tasman cards:-
Customers can collect points on the cards with the flying they do with the airline and can get the redemption of those points in the off peak seasons only, when the schools are off. Family discounts can be given if a whole family is going to travel.
