On September 6, Forbes.com published an article, titled “Big Tobacco Takes Its Last Drag As Economic Change Looms,” that discusses price elasticity in the cigarette industry.
While any thorough discussion of price elasticity (of demand) would be lengthy and complex, here are a few brief comments:
- As seen in the above-mentioned Forbes article, price elasticity can change over time.
- While the concept of price elasticity can be a powerful and valuable tool, it can also be misapplied. As such, caution is warranted.
- Although price elasticity, at times, comes across as being a “new concept,” such is not the case. As mentioned in the Forbes article, price elasticity dates back to (at least) 1890.
- Many different factors determine price elasticity; as such, changes in price elasticity can arise from disparate sources.
With regard to this last point, factors that impact price elasticity can be grouped into various categories, including firm-specific, industry-specific, and general economic (macroeconomic) factors.
While, as with any discussion of pricing and pricing strategy, it is difficult to generalize among firms as each company can have varying characteristics and dynamics that need to be considered, at this point among the three categories listed above, from an “all things considered” basis the largest (and most unexpected) changes to price elasticity will be driven by changing economic factors.
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