The market equilibrating process and methods to increase organizational revenue

Equilibrium

Elasticity is one of the contributing factors to the amount of pricing power an organization might have over a product. Some products are elastic, meaning that demand fluctuates with price to a degree of 1.0 or more, and some products inelastic, meaning that demand fluctuates less than 1.0. To give an example of elasticity, consider a bakery that makes baguettes. The demand for a baguette is likely to be elastic. There are several reasons for this. The first is that, unless one is in France, the baguette is a mandatory daily purchase. For many consumers, bread is an optional purchase but even for those who always buy bread, there are a number of different choices at any given store. The baguette, therefore, is a fairly specialized bread that people buy when they feel that they want that particular type. The baguette, therefore, is not a staple purchase but a discretionary purchase. Discretionary purchases tend towards elastic demand, especially when there are several substitutes readily available, which is the case for the baguette.

Another factor that needs to be considered, however, is whether there are any complementary goods, or even specific demand drivers. A complimentary good for a baguette could be cheese, if that is what people normally eat with baguettes. If the price of cheese is high, demand for baguettes might suffer, but if the price of cheese is lower, the demand for baguettes might increase.

Also, the dollar value of the good in question is also important. The baguette is not of high dollar value. This has an impact on the strength of the income effect. Given that most people's income is at a level high enough that a baguette is a cheap purchase, the fluctuations of baguette prices might not have a strong effect on demand. In a poor country with baguettes -- Vietnam comes to mind -- the income effect will result in a higher level of price elasticity of demand with respect to baguettes than in France or the U.S.

2.

Movie theaters should solve their problem by allowing for market pricing on seats at different showings. I would borrow a system that is in place at some discount airlines. This is a good business to take cues from because, like the movie theater business, they have regularly scheduled but perishable supply. The prices for each seat would depend on how many seats for the showing remained. The first, say, ten seats in the theater would be the lowest-priced, and then the prices can increase as the number of remaining seats decreased. The theater would therefore encourage people to forgo a popular showing for a less-popular one because of the money saved