Buffett on Elasticity…

If you aren’t sure about the price elasticity of demand, check this out to confirm that it’s a powerful concept in the ‘real’ world of business.

Billionaire financier Warren Buffett has identified the strategic importance of having a product on which you can increase the price ‘without losing business to a competitor’.  The example used is the US horseracing newspaper the Daily Racing Form (in the article as the ‘Daily Racing Forum’) which is still the ‘go-to’ source for racing form in the US (now online at www.drf.com).  Back in the day (the 1970s) the owner of the paper recognised its essential, necessity-like (or habit forming) nature and felt he could increase its price without fear of losing revenue.

Why?  Well, after a few sessions of GBC you should now know!  It’s all to do with having an inelastic demand for your product.  And, if you have a product which doesn’t face an inelastic demand, what could you do about the situation?  Well, that’s where advertising (as well as other business-related activities) can come in, to help make the demand curve for your product just that bit steeper.  Or, more inelastic.

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