Do Price Strategies Work In Business Simulations?

Abstract

This paper presents the results of theoretical experiments involving four price strategies. The purpose of the research was to determine which strategy would prevail given a different elasticity zone for initial price. In the first experiment price was set in an elastic zone of firm demand. In the second experiment the initial price was set where the elasticity of demand was equal to 1 and in the third experiment the initial price was set in the inelastic zone. The four different strategies employed were: (1) increase price by $1 each period, (2) decrease price by $1 each period, (3) Let Price remain the same and (4) Follow the leader. Without a knowledge of demand parameters the experiments clearly demonstrated that the choosing of a winning strategy was a matter of luck.