Explain how the concept of elasticity, Business Management

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QUESTION

Domino's sold a 12" Pizza for Rs 265. The table below refers to the for price range for Domino's and Pizza Hut. The high price was attributed to the high quality of ingredients used. For instance, Domino's sourced its Peperoni and Jalapeno needs from Australia and Spain respectively. However, with competition increasing from Pizza Hut, Domino's introduced price cuts, discounts and freebies to attract the customers. In 1998, Domino's introduced the Pizza Mania scheme where it offered a large pizza for Rs.129/-. The demand was overwhelming and the company sold close to 5000 pizzas in the first week of its launch. During late 1998, both Domino's and Pizza Hut were trying to lure the customers with discount coupons by issuing such coupons through several schemes. Said an analyst, "Even then, the prices are too high. Globally, fast food chains only succeed when they bring their prices down to the same level as the street food."

           Table: Pizza Price Comparison

Company                           Price Range (Rs)

Domino's                                 39-265

PizzaHut                                  75-350

Explain how the concept of elasticity can be used to determine the level of price competition between Domino's and Pizza Hut?


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