Products, Services, and Prices in the Free Market Economy: Price Elasticity of Demand

1040 Words Jan 16th, 2007 5 Pages
Domino 's Pizza, Inc

In 1960 Tom Monaghan and his brother James bought DomiNicks, a pizza store in Ypsilanti, Michigan. In 1965 the company name was changed to Domino 's Pizza. Domino 's Pizza is one of the leading companies in the pizza delivery industry in the United States and around the world. The company headquarters is located in Ann Arbor, Michigan and they employ approximately 13,500 people. Total revenue was registered at $1,511.6 million during the fourth quarter of 2005, a growth of 4.5% over 2004. The performance gain of the company was $199.1 million during the fiscal year of 2005, a growth of 16.2% over 2004. The pure gain was $108.3 million in the fiscal year of 2005, a growth of 73.8% over 2004. Domino 's enterprise
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At $7 the price elasticity for consumers also increased and bought more pizza at this price than at any other price sold.
Time
According to the graphs provided above, with prices ranging from $10-$4 during certain periods and the company making price adjustments, the price elasticity remained most valuable at $7. At this point, the company realizes that $7 is where they are making most of their profit and that is the reason Domino 's Pizza would leave their product on the market at this price for a longer time. It takes time in order for consumers to adjust to a specific product at a new price. The longer Domino 's Pizza has their product on the market at this price, the greater the demand. This demand will help increase the company 's revenue. At this time Domino 's Pizza would test one of his other products to see if that product has as much of a demand as pizza at its selling price. The concept of time is looking to see if the demand of the company 's product rises over a certain period. Throughout this time, the company can introduce another product similar to pizza and determine if consumers are willing to have the same demand for this product.
Conclusion
Domino 's Pizza can take advantage of the elasticity of the demand to maintain a steady source of high revenues. Increasing the pizza prices will provide more revenues but will decrease the demand and the revenues will

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