Are Elasticities Overated? The Case for Price-Share or Price-Revenue Curves
Published by Staff author in Implementing theory · 7 August 2025
Tags: Elasticity, of, demand, cross, elasticity, of, demand
Tags: Elasticity, of, demand, cross, elasticity, of, demand
Price elasticity of demand sometimes appears to be heavily emphasized in conjoint analysis studies. They are commonly used to indicate how quantity demanded responds to price changes. However, such a heavy emphasis is problematic. Instead, price-share curves (showing how a price change affects market share) or price-revenue curves (showing the direct revenue impact) provide clearer, more actionable insights to users, without the ambiguities of elasticity.
1. Elasticities Vary Over the Price Range
If you are going to use elasticities, it is worth pointing out that the most common metric - 'arc elasticities' (calculated either using simple % change formulas or midpoint formulas) are calculated over the whole price range or some segment of it. This tells you nothing about the non-linearity in consumer behavior, making it less useful for pricing decisions. Response to price changes vary over different regions of the price range, as different consumer clusters / segments with different price sensitivities respond at different points meaning curves are often far away from the smooth ideal of economic theory.
2. Elasticities Are Less Intuitive
Information users need intuitive, actionable metrics—not abstract coefficients. Communicating an elasticity value like "-1.5" is hard to interpret.
3. Price-Share and Price-Revenue Curves Offer Clearer Insights
As an alternative:
- Price-Share Curves – show how price changes impact volume market share.
- Price-Revenue Charts– directly map how different prices affect revenue.
Key advantages:
- They are visual and intuitive, making them easier to interpret than elasticities.
- They capture non-linear effects, showing how outcomes change across price points.
- More realistic than the smooth well-behaved curves from economics theory, as different consumer clusters / segments with different price sensitivities respond at different points - and there is also a correlation at times between these clusters and other attributes such as brand preference. For instance, a more price sensitive segment may reduce their purchases of the brand as prices move above the low end, but as price positioning moves even higher another segment that sees higher price either as a 'quality indicator' or because they see it as a 'veblen good' starts to switch over to the brand.
- They are action-oriented, allowing managers to immediately see optimal pricing strategies.
Figure: Share and revenue curves are often more complex than economic theory would suggest
*RPK = revenue per 1,000 customers in the total market.
In a nutshell
While elasticities have theoretical value, their lack of interpretability make them poor tools for real-world pricing decisions. Price-share and price-revenue curves provide clearer, more reliable guidance, helping businesses set optimal prices without the pitfalls of elasticity-based analysis.