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?

Solutions

Expert Solution

*******Please Upvote as small token of appreciation********

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Two strategies are used by the government in the “War on Drugs.” One is to offer...

Two strategies are used by the government in the “War on Drugs.” One is to offer free treatment without punishment to drug addicts who ask for help while at the same time punishing drug users who are caught with drugs. The other is to not target drug users, but to attempt to intercept drugs at the border and actively attempt to arrest drug dealers and suppliers. Street crime is positively influenced by the price of drugs (higher drug price =...

Explain how the prices of goods and services used in the CPI differ from the prices...

Explain how the prices of goods and services used in the CPI differ from the prices reflected by GDP deflator.

In 2011, Netflix customers’ service fees increased by 60%. Netflix discontinued a subscription offering DVD rentals...

In 2011, Netflix customers’ service fees increased by 60%. Netflix discontinued a subscription offering DVD rentals and unlimited video streaming for $9.99 per month; DVDs and streaming would be separated, with each costing subscribers $7.99 a month ($15.98 for both). This strategic decision occurred as video streamed via the Internet was slowly replacing discs. However, now customers wanting both services had to juggle two accounts, and Netflix lost around 800,000 subscribers. Assume that you are director of product pricing at...

A free market is one in which the prices of goods and services are determined by...

A free market is one in which the prices of goods and services are determined by the interaction of the suppliers and the demanders without the intervention of the government or any other external agent. In a free market, there is no limitation on the price at which it can be sold or the quantity to be produced. Sellers are free to sell what they want and consumers are free to choose who they will buy from. The equilibrium price...

A free market is one in which the prices of goods and services are determined by...

The following table reports prices and usage quantities for two items in 2009 and 2011. (Round...

The following table reports prices and usage quantities for two items in 2009 and 2011. (Round your answers to the nearest integer.) Quantity Unit Price ($) Item 2009 2011 2009 2011 A 1,500 1,800 7.50 7.15 B 4 2 650.00 1,500.00 (a) Compute price relatives for each item in 2011 using 2009 as the base period. Item Price Relative A B (b) Compute an unweighted aggregate price index for the two items in 2011 using 2009 as the base period....

The following table reports prices and usage quantities for two items in 2009 and 2011. (Round...

The following table reports prices and usage quantities for two items in 2009 and 2011. (Round your answers to the nearest integer.) Quantity Unit Price ($) Item 2009 2011 2009 2011 A 1,500 1,600 7.50 7.45 B 2 1 650.00 1,500.00 (a)Compute price relatives for each item in 2011 using 2009 as the base period. Item Price Relative A ? B ? (b) Compute an unweighted aggregate price index for the two items in 2011 using 2009 as the base...

Universal banks offer the full range of banking services, together with non-banking financial services, under one...

Universal banks offer the full range of banking services, together with non-banking financial services, under one legal entity.” Explain the financial activities of banks

Netflix is selling for $105 a share. A Netflix call option with one month until expiration...

Netflix is selling for $105 a share. A Netflix call option with one month until expiration and an exercise price of $115 sells for $2.20 while a put with the same strike and expiration sells for $11.56. a. What is the market price of a zero-coupon bond with face value $115 and 1-month maturity? b. What is the risk-free interest rate expressed as an effective annual yield?

Video Streaming Services (e.g., Netflix and Hulu) provide internet subscription services streaming TV and movies. For...

Video Streaming Services (e.g., Netflix and Hulu) provide internet subscription services streaming TV and movies. For a fee, subscribers can instantly watch unlimited TV shows and movies streamed over the internet on their TVs, computers and mobile devices. How do you think these firms should recognize subscription revenues?

Subjects