Market structure and the elasticity of demand for the good or service – Case Study Example
Market structure and the elasti of demand for the good or service Space International Inc. has been in operation since 1985. It began as a movie store renting video tapes for domestic viewing. Over years, the company has expanded and advanced by selling movies online and in their physical stores within some parts of Europe.
With introduction of android and windows operating system in the market, the company opted to develop an online store where movie producers worldwide would upload their movies and the company markets for them through various online means. With the technology niche, the company has witnessed increased number of downloads from the online store. It shows that there is huge demand for new movies bearing in mind that one can download content from his or her locality. This makes the users comfortable since they can obtain both new and old movies that are stored online.
Space International consider online movie sale to be highly elastic since a slight change in price normally affect the demand and supply. Despite market shifts, the company has managed to realize reasonable profits. This owes to the fact that movie lovers tend not to survive minus movies no matter price since they would love to have a glance at their celebrity role models. With advanced technology and increased users, market has been very promising since the cost of operation has gone down; in case prices are increased, a user would prefer watching the movie from payable channels which kills the industry; this has led to price decrease in several occasions (Hirschey, 2009).
A movie is highly elastic since a slight change in price will lead to sharp change in demand and supply; this is steered by the fact that piracy hooligans are also other major competitors who don’t want to operate using a license.
With these competitors, Space International aims at maintaining their clients by offering affordable prices which has seen them survive even during economic downtown. Changes in quantity supplied as a result of movie pricing will lower marginal revenue and increase marginal cost. Whenever the marginal revenue of selling a movie unit is greater than the marginal cost of bringing it to the market, Space International is usually very happy for having made great profits. This usually sees the sales and marketing mangers land on a marginal decision rule; more movie units are brought into store as long as the marginal revenue for the added unit exceeds the stated marginal cost.
Besides Space’s pricing decisions, the firm offers bonus movies especially if a customer orders more than four movies at once. This makes the consumer to come back having a robust scale of preference. Another approach is usually to have movies that are not on high demand to be sold at a relatively low price or given out for free for premium subscribers.
Changes in business operations will automatically have a great impact on both fixed and variable cost. For instance, if the company opts to open a branch in South Africa, both the costs will rise more especially the fixed one since operations shall have been increased. So any decision that is made has to be in line with the company’s requirement in order to maintain these costs at all the time.
Currently, there are several movie stores that are providing the same services both domestically and internationally, these forces the company to diversify in order to supply a lot of substitutes such as local and international content that a user may wish for at the click of the button.
Hirschey, M. (2009). Managerial economics. Mason, OH: South-Western Cengage Learning.