ε
Revenue management methods
Price elasticity and price optimisation
Demand response to price; basis of revenue- or profit-maximising prices.
ε = (ΔQ/Q) / (ΔP/P); with demand Q = a·P^ε, revenue is maximised at ε = −1 and profit at P* = c·ε/(1+ε)
How to read the metric
Elasticity differs by segment and lead time; it is estimated from rate and sales history.
Worked example
ε = −1.5, variable cost 3 000 ₽ → P* = 3 000 × 1.5 / 0.5 = 9 000 ₽.