Price elasticity: find the threshold that reverses the decision.
Evidence status
What was reproduced, and what it does not prove.
The educational specification and fixture are verified. The Python run reproduces the central volume, the candidate and reference contributions and their difference, and tests the input bounds. It validates neither a market elasticity nor a causal price effect.
- Technical specification of the price-elasticity simulator, specification in French (opens in a new tab)
v1, 31 August 2026 · CC BY 4.0 · specification in French · Method document written by marketing-mix.net. The figures are illustrative: they are not market measurements.
Key distinctions
Three conditions before calculating.
Arc elasticity
For two distant observations, using changes relative to the averages reduces dependence on the starting point. This measure remains descriptive if price and demand also changed with promotions or a different selection.
Isoelastic projection
The relationship Q₂ = Q₁ × (P₂ ÷ P₁)^ε provides coherent sensitivity over a limited range. It must not be extrapolated far beyond observed prices.
Economic threshold
Critical elasticity solves the equality between current and candidate contribution. It depends on variable cost: two offers with the same demand can justify opposite decisions.
Method
Moving from observation to a decision range
- 01Define the population
Separate new customers, renewals, negotiated contracts and segments whose alternatives differ. An average elasticity can mask an unfavourable migration.
- 02Control simultaneous changes
Document promotions, availability, assortment, exposure and competitor reactions. Without a comparator, a volume change cannot be attributed to price.
- 03Estimate from several sources
Compare historical data, experiments, discrete choice and interviews. Divergences often signal different horizons or populations.
- 04Publish the sensitivity
Show contribution, volume and migration risk for the cautious, central and high elasticity bounds.
The price–volume–contribution curve
Three elasticity assumptions show how the same price increase can raise or reduce contribution. The tipping threshold is more useful than a single forecast.
10,000 units · contribution €380,000
An 8% increase remains viable down to an elasticity of −2.49
Current price is €100, variable cost €62 and volume 10,000 units. The candidate price is €108 with central elasticity −1.6.
Projected volume is 10,000 × 1.08^−1.6 = 8,842 units. Current contribution is €380,000. Candidate contribution is 8,842 × €46 = €406,732. Threshold elasticity is ln(38 ÷ 46) ÷ ln(1.08) = −2.49.
The increase is favourable centrally, but must be rejected or redesigned if plausible elasticity falls below −2.49 after migration and communication costs.
Acceptance conditions
What must be true to act.
- 01
Elasticity is tied to a segment, horizon and price range.
- 02
Variable cost and net margin are included in the tipping threshold.
- 03
At least two estimation sources are compared, or one source is explicitly labelled provisional.
- 04
A rule for returning to the previous price is defined before the test.
Limits
What this analysis does not prove.
- Historical elasticity can be endogenous when price responds to demand.
- Competitor reactions and fairness perceptions are not contained in a simple demand curve.
- Constant elasticity is rarely defensible across large price changes.
References
Works cited.
- Tellis, G. J. (1988), “The Price Elasticity of Selective Demand”, Journal of Marketing Research.
- Bijmolt, T. H. A., Van Heerde, H. J. & Pieters, R. G. M. (2005), Journal of Marketing Research.
- Nagle, T. T., Hogan, J. E. & Zale, J. (2016), The Strategy and Tactics of Pricing.