Question

Q1. Price rise at the Daily Mirror

Sly Bailey, the Trinity Mirror Chief Executive, sought to boost revenues of the Daily Mirror in 2004 by increasing the price of the tabloid newspaper by 3p, from 32p to 35p. The move is a sharp U-turn of the policy of Philip Graf, her predecessor, who tried to boost Daily Mirror circulation by cutting the cover price, triggering a price war with its rivals The Sun and the Daily Star. Ms. Bailey ended the price war as soon as she took over at Trinity Mirror in 2003. The Daily Mirror will now cost 5p more than the The Sun, which is owned by News International, parent company of the Times. It appears that The Sun has no immediate plans to increase its price. The Daily Mirror last increases its price in September 1999 but the tabloid newspaper market in the UK is fiercely competitive and it’s not clear what the effect on its circulation will be.

Question:

1. What price elasticity of demand issues are raised in this case study?

Answer 1

Price elasticity of demand for a product measures the responsiveness of change in consumption for a given change in the price of the product. In this case, the new executive has increased the price in order to increase revenue which means that the new executive is hoping that the demand for their newspaper is relatively inelastic.

however it is given that the market is fiercely competitive which means that there are close substitutes available and the demand is relatively elastic. This indicates that the executive should actually reduce the price in order to increase revenue because when demand is elastic price should be reduced to boost revenue.

it is therefore expected that the circulation for the newspaper is likely to decrease more than expected because of elastic demand and availability of substitute newspaper