Chapter 7

Elements of Pricing

Pricing is at the heart of revenue management. As noted earlier, we have a three-part relationship:

Prices → Revenues → Profits

The linkage between prices and revenues is volume, the quantity that can be sold at given prices. The linkage between revenues and profits (income) is expenses, the costs of generating these revenues. The revenue management function involves the simultaneous consideration of all three elements. Setting prices has become a complex area, one that merits the attention of both top management and financial managers, who are best able to analyze the income effects of pricing.

Types of Prices

There are two basic types of prices: list prices and quoted prices. List prices represent announced prices ...

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