According to The Wall Street Journal, Netflix has split their services into two subscription types and increased the combined price by products by 60%. They expected to only lose 4% or one million of their customers.
However, due to the price increase, Netflix customers responded elastically by canceling their subscriptions at a faster pace than the company had forecasted. In other words, the elasticity of DVDs and on-demand movies was greater than they had expected. In fact, in the last three months, their stock has fallen 63%, mainly due to this pricing misstep.
Obviously, they did not take the time to read chapter 6 of Krugman’s textbook.
Although they have recombined their services into one subscription, they have kept the price increase. If I were you, I would not buy this stock as Netflix clearly does not understand how its customers will respond to changes in its services.
So, I now ask you, should Netflix fast forward or rewind?
No comments:
Post a Comment