Primarily for non price competition. Survival , accept short term losses necessary for survival. Need to know buyers acceptable range of prices and sensitivity towards price changes. Need to gauge Price Elasticity , a measure of the sensitivity of the demand to changes in prices. Percent change in quantity demanded relative to the percent change in price.
Elastic demand is more sensitive to price than inelastic demand .
If demand is elastic then change in price causes an opposite change in the total revenue. If demand is inelastic then change in price causes the same change in the total revenue. The less elastic the demand, the more beneficial it is for the seller to increase price. Companies Finding Consumers resisting Price Boosts Different examples of products that have elastic demand and inelastic demand. Return to Content List Costs , In the long run, cannot survive by selling at or below cost.