business

Student discounts – charity or good business?

Student discounts – charity or good business?

Companies often offer student discounts – from 10% to 50% off. What is the logic behind this student discount – is it compassionate pricing for hard-up students or is there good economic logic to increase profits for firms? Charging different prices to different groups of consumers is known as price discrimination. The idea is that if different segments of the market have different price elasticities of demand, then the profit maximising price will be different for the alternative groups. Students typically will be more sensitive to prices. This is because…

What happens in a recession?

What happens in a recession?

A recession is a period of negative economic growth. In a recession, we see falling real GDP, falling average incomes and rising unemployment.This graph shows US economic growth 2001-2016. The period 2008-09 shows the deep recession, where real GDP fell sharply. Other things we are likely to see in a recession1. UnemploymentThe rise in unemployment 2008-09 mirrors the fall in real…

Are Android and iPhone close substitutes?

Are Android and iPhone close substitutes?

Substitute goods are two goods which can be used for a similar purpose – they provide different alternatives to consumers. In the case of Android and the iPhone, they offer similar functionality and form, but to some consumers there is a big differential in terms of brand loyalty, meaning for certain types of consumers they are very weak substitutes.First-time consumer Suppose your grandmother has never had a smartphone, and you persuade her to buy one. To your grandmother, the two phones will…

Should we tax robots?

Should we tax robots?

Automation and AI have been called the fourth industrial revolution. Robots replacing the jobs of human labour will increase efficiency and enables higher economic growth But, others are concerned that rapid automation can create unequal outcomes, with some losing their job and struggling to gain new forms of employment. A robot tax would, in theory, make the winners from automation pay towards compensating the ‘losers’ of automation.However, critics of a robot tax argue that it will stifle innovation and encourage…

Niche products

Niche products

A niche product is a product targeting a specific section of a larger industry and market. Niche products are often (but not always) more expensive than more generic products. Because niche products are fulfilling a particular specialist demand, we find that demand tends to be more price inelastic. This enables a firm selling niche products to generate a higher markup and profit margin – this can compensate for the lower volume. Niche products can be provided by multinational companies, but they also give a better chance…

Clever ways for firms to increase prices

Clever ways for firms to increase prices

Supermarkets and other retailers often seek ways to increase the price without losing customers. They have a few different options, depending on the good and its price elasticity of demand. In recent months, many supermarkets have managed cost increases by shrinking the size of the packet. Prices stay the same, but the price per gram of chocolate goes up. However, this practice of shrinkflation has come under scrutiny from the media and often leads to negative headlines when ‘exposed’. Ways to increase price of goodsIf demand is price…

The decline of Yellow Pages

The decline of Yellow Pages

For those born in the digital age, a paper copy of business listings may seem something of an anachronism. Why leaf through a telephone directory, when you can search online and get more information at the tips of your fingers?Yellow Pages have announced that their paper directory will cease publication in 2019, and it will be replaced solely by a digital service. I received a copy through the post yesterday. It is very thin compared to the directories I remember…

Pricing strategies

Pricing strategies

A look at different pricing strategies a firm may use to try and increase profitability, market share and gain greater brand loyalty.Types of pricing strategies General strategiesProfit maximisation. One strategy is to ignore market share and try to work out the price for profit maximisation. In theory, this occurs at a price where MR=MC. In practice, it can be difficult to work this out precisely. Sales maximisation. Aiming to maximise sales whilst making normal profit. This involves selling at…