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In: Economics

In 2011, Netflix changed the prices of their services. They used to offer two services (one...

In 2011, Netflix changed the prices of their services. They used to offer two services (one DVD at a time through the mail and unlimited streaming) for one prices (about $9) That month, they split the services and started charging about $8 per service ($16 total). That’s pretty large price hike in one fell swoop. There were critics and dooms-day sayers.

People assumed that Netflix profits would drop as people “streamed” away (pun entirely intended). But the company didn’t fold as man thought it might. It’s all about elasticity. Yes, Netflix lost subscribers – lots of them, but remaining customers paid more per service- mostly dropping the less profitable DVD in the mail service. Was it a good move? What happened to their profits? What does this say about knowing the price elasticity of demand for your product? Did Netflix understand the elasticity of demand for their product?

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Rahul Sunny answered 1 year ago
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