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Realistically , how much power does the consumer have in determining a product’s price?

Updated on July 18, 2014

Realistically , how much power does the consumer have in determining a product’s price?

Basic economics and principles of business have always taught us that allegedly, the consumers determines the price of a product . Theoretically, this is true when we consider the laws of demand and supply. However, are these laws the holistic truth and completely incontestable in the determination of a product’s price? Or are there other factors to also be considered in price determination?

What these laws state

Law of Demand - The higher the price of a product , the greater chance that the consumer’s demand for such a product will decrease and vice versa.

Law of Supply - As the price of a commodity rises, so does the quantity supplied and vice versa.

Role of Laws

The two laws combine to influence resource allocation and price levels. It would be easy to assume that this is where the consumer gains its power to affect the market.

Feelings Towards Laws

My sentiments towards these laws are that they are simply the foundation and fundamentals in price determination. There are concepts and factors in these two laws that can make the subject a bit more complicated and extensive contrary to popular belief.

Reason for writing this

I have decided to write this hub because I once believed that the laws of supply and demand meant that the consumer had all the ability in determining the price ; because after all, they are the buyers of the product right? This of course proved to be a logical fallacy when I really digested and assessed what I believed and became cognitive of my surroundings. What I mean by surroundings is the fact that I thought about how designer items can cost so much and the consumer just conforms to the absurd and exorbitant prices and even more so , when a product that can be bought by the average consumer faces a price increase and the quality of the does not increase .

The last scenario, I’ve particularly experienced because I am a fan of the Air Jordan Retros and I am aware that they will be due an increase over the Christmas/Holiday season this year. I am honestly gutted and infuriated at Nike’s decision to do this as I already feel that the shoes are currently too expensive ( like many other buyers) and the quality of the shoe has surely not increased. This a great example of where consumers should be able to use their power to make Nike regret their decision by simply not buying the shoes but it is quite frankly not that simple. You see, because of the hype that is placed on the sneaker and the fairly limited amounts that are produced, it often makes us forget that we are the ones with some sort of power and the seller can not push us around with such relative ease.

It is not only the hype and quantity limit but another factor. “ Even if some consumers are not willing to pay the higher price, it is unlikely that all consumers will refuse to pay more--particularly the most avid fans of an artist. Collectively, consumers may not be nearly as powerful as some assume. “ That is quote from a Harvard Business professor from a cnet article pertaining to ITunes prices from 2009. It highlights just exactly why the consumer can not effectively dictate the price of a product.

The concept that I was mainly speaking about that makes the pricing subject a bit more complicated and extensive is Elasticity .

What is it?

Elasticity measures the relationship between a good and its price based on consumer demand, consumer income, and its available supply. Learn the basics about it here. ( Investopedia.com)

Note Well - I will not take into account all the aspects of Elasticity mainly because I am trying to emphasize a point.

Demand as it relates to Elasticity

Price Elasticity of demand shows the degree of response of quantity demanded is to changes in product prices.

Don’t worry if you don’t understand the explanation of Price Elasticity of demand because hopefully what is subsequent will make it easier to grasp.

Describing Price Elasticity of Demand

Elasticity of demand is usually described as elastic or inelastic.

Elastic demand is where demand will be affected (whether increasing or decreasing) by the price of the good. This is common for many commodities such as certain foods like candy.

Contrary to elastic demand , people will buy goods with an inelastic demand no matter what the price is. These types of goods are typically goods that we need or are integral parts . For example medicine and gas.

I have pinpointed Elasticity ( More particularly Price Elasticity of Demand) because I feel as if this is where the consumer loses its power. Because the consumer is so focused on materialism it is much easier for the seller to get away with absurd prices and unwarranted price raises because many of us trick our brains into believing that most of the goods we purchase are products of inelastic demand when we don’t really need them and we especially don’t need them at these prices.

So I definitely believe the consumer has power to determine the price , but perhaps it is overemphasize by some and overlooked by others.

Do you agree with the hub?

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