How would you respond academically to this microeconomics article? What is your opinion or how would you react to this situation? Basically, I would like your independent observation basically....

How would you respond academically to this microeconomics article? What is your opinion or how would you react to this situation? Basically, I would like your independent observation basically.

http://www.businessweek.com/articles/2014-01-24/netflix-mulls-additional-pricing-tiers-and-a-basic-fee-increase#r=read

Asked on by barbiedot

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Your question really asks a series of questions, each of which can be answered differently.  My academic response to this article is much different from my opinion or my “independent observation.”  Let me address two of the questions that you are asking.

Academically, I would say that this article shows us the importance of segmenting your market and of identifying the various price elasticities of demand of each of these segments.  In the past, Netflix has had only one price for a subscription here in the United States.  This means that it may be missing out on some revenue that it could be making.  There could very well be people for whom demand for Netflix is relatively inelastic.  They would be willing to pay a higher price for the service, particularly if they were to have some extra capabilities that are not available to them now.  If this is the case, Netflix would be likely to get more revenue if it were to have a higher price that some customers could pay.  At the same time, it is possible that there are some people whose demand for Netflix is rather price elastic.  These are people who would be more willing to subscribe if they could pay a lower price for a “barebones” service.  Thus, if Netflix were to offer tiered pricing, they would be attracting different market segments with their different tiers.  This could help to maximize their profits.

In terms of my opinion, I think it would be good for Netflix to offer a basic service for less money.  I do not need to be able to stream Netflix to multiple devices.  I would be happy to pay less for a more basic service.  However, this is not very important to me as I do not think that the price differences involved are relevant.  If the price of Netflix goes down $2 per month, it would only save me $24 per year.  This is not enough to make a huge difference to me.

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