Price point

Price points are prices at which demand for a given product is supposed to stay relatively high. Introductory microeconomics depicts a demand curve as downward-sloping to the right and either linear or gently convex to the origin. The downwards slope generally holds, but the model of the curve is only piecewise true, as price surveys indicate that demand for a product is not a linear function of its price and not even a smooth function. Demand curves resemble a series of waves rather than a straight line. The diagram shows price points at the points labeled A, B, and C. When a vendor increases a price beyond a price point (say to a price slightly above price point B), sales volume decreases by an amount more than proportional to the price increase. This decrease in quantity-demanded more than offsets the additional revenue from the increased unit-price. As a result, total revenue (price multiplied by quantity-demanded) decreases when a firm raises its price beyond a price point. Technically, the price elasticity of demand is low (inelastic) at a price lower than the price point (steep section of the demand curve), and high (elastic) at a price higher than a price point (gently sloping part of the demand curve). Firms commonly set prices at existing price-points as a marketing strategy. There are three main reasons for price points to appear: Substitution price points price points occur at the price of a close substitute when an item's price rises above the cost of a close substitute, the quantity demanded drops sharply Customary price points the market grows accustomed to paying a certain amount for a type of product increasing the price beyond this amount will cause sales to drop dramatically Perceptual price points (also referred to as "psychological pricing" or as "odd-number pricing") raising a price above 99 cents will cause demand to fall disproportionately because people perceive $1.00 as a significantly higher price In relation to customary price points, oligopolies can also generate price points.