Demand Analysis

1. Existing products pose a particular challenge to their vendors. If too much change is put on an existing product, customers may switch to competing products. On the other hand, if a product does not keep up with its competitors, or stay on the cutting edge of technology (where appropriate), vendors will find that they lose market share.

To combat this, companies undertake demand analysis to determine what not only the preferences that their consumers have for products and possible product changes, but also to determine the lifecycle stage that the product is in. The demand analysis focuses on determining the demand schedule for the product, in which the elasticity of demand is of particular importance. If a product has a particularly high elasticity of demand, small changes in price result in large changes in quantity. If the change being considered by a company will involve an increase in the price of the good and the good is highly elastic, the company may lose market share. This is the case when goods are considered commodities and product enhancements do little to change the public's perception.

If, however, the good has a highly inelastic demand schedule, the company may want to go ahead with product enhancements that are designed to take advantage of that inelasticity and which offer the potential to maintain market share in the face of possible increased competition by companies willing to make similar investments.

2. Consumer optimization suggests that e

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market is considerable. In an oligopoly, there are few producers and little or no difference in product, or limited product differentiation. These producers have some market power. These situations can be contrasted with perfect competition, or even imperfect competition. In perfect competition, there are many sellers marketing nearly identical products. Individual companies have very little control over prices since any change in price results in the consumer going to another supplier. Under imperfect competition, there are many differentiated sellers producing products with perceived differences (the actual differences may be far less). These companies have some control over the market, since consumers buy less on price and more on image or perceived quality, but less control than in the oligopoly or monopolistic situation. Utilities are a current situation of a monopoly and also a situation where market power has been exercised. Because of the unique nature of the product (key to survival in today's age), and because of the large capital investment that is required to enter the utility industry, most utilities are regulated by government, either on a local or regional basis. This is presumably in the best interest of

Category: Business - D