Sunday, October 30, 2011

Redbox Price Increase and the Possible Consequences

Earlier in the month, Netflix increased their rates by up to 60% and split up their DVD and streaming services into two entities which cause 800,000 subscribers, including myself, to drop the service altogether. Netflix believed that the increase in demand for their product warranted an increase in price. However, the price increase was too high. Starting on Halloween, Redbox will increase their price due to their recent successes. Unlike Netflix, Redbox tested their new price in many different locations and only saw an expected drop-off in demand I believe that Redbox increased their price perfectly according to the law of price and demand while Netflix needs to hire some new economists.

http://www.csmonitor.com/Innovation/Latest-News-Wires/2011/1029/Redbox-price-increase-Will-it-stir-backlash-too

4 comments:

Dainelle W said...

I found this post very interesting. Netflix has been a favorite movie renting service for many consumers in the entertainment industry. With this sudden change in their business plan, as stated in the article, Netflix has lost 800,000 subscribers which is detrimental to the company's revenue. Netflix, another favorite movie business, selectively drove up their price level to a reasonable price which consumers are obviously content with. It's a shame that Netflix decided to drive up their prices so high, but at least Redbox is a affordable substitution for consumers trying to make a switch from Netflix.

-DanielleW

Cole B said...

Good job Johny, this was very interesting. It is evident that Netflix felt that they were below the equilibrium price, and a solution to this problem was to raise the price. However it is shown with their reduced amount in costumers that they have now exceeded the equilibrium price. The way I see it is that because of the high prices that netflix is exerting in their attempt at equilibrium, it makes Redbox a substitute. Even though Redbox will now also raise their prices, they are still a more reasonable choice.

Hunter Prater said...

Jonny what you have to say makes a lot of since although I don’t entirely agree with what you have to say. Yes the law of demand says that the lower the price the more people will desire that item so more people are attracted to red box because of the low prices. Although the consumer has wants and those wants may not always be the newest movies and red box doesn’t provide as many choices as Netflix. Out of all of this one must look at the trade offs and decide if they want a choice of any movie for a bigger price or rent from a limited selection for cheaper. If you ask me I would go with Netflix with out a doubt because there is more variety and I don’t like being limited to certain selections.

JonathanW said...

Hunter, I do agree that Netflix has a higher amount of content than Redbox but for people like me, the streaming content itself was very outdated. It is up to the consumer to choose which service they would like to use. Thank you for your comment and thank you Cole and Danielle for your comments as well.