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Elasticity is a way of measuring the impact that a change in price will have on the demand for a product, and the revenues which are generated. If Will wants to maximize revenues, he can use the concept of elasticity in order to determine how prices for both the out of copyright and new books should be price.

The calculation of elasticity is relatively simple, if there is some historical data available indicating sales following a price change. Elasticity can be calculated by dividing the percentage change in the demand by the percentage change in the price (Baye, 2007). For example, if there is a 50% decrease in demand following a 50% increase in price the calculation will be -50/50 = -1. In elasticity calculations is it is usual to drop the negative indicator (Baye, 2007). This means that for every 1% increase in price there will be 1% decrease in demand, and conversely for every 1% decrease in price there will be a 1% increase in demand. If this is applied to the sale of movies where he found that when prices decreased from $80 to $20 sales increased by 600% a sample plasticity calculation can be undertaken. In this case plasticity is calculated by dividing 600 by -75, which gives an elasticity of -8, or 8 because the minus indicator is dropped. This means that it was possible to calculate the change in prices, and that for every 1% decrease in prices there would be an 8% increase in sales. Where the increase in demand is greater proportionately than the decrease in price, there will be an overall increase in revenue, where the elasticity is less than one the proportional change in demand will be less than proportional change in the price.

With the case of the films, it was clear that the company was better decreasing prices in order to increase sales. However, the digitized books are a different matter, they are different product, and at the current time they are benefiting from the competitive advantage of diversification, as the technology is patented and Will does not believe that it can