Despite a nearly 25% increase in the overall cost of shipping and handling, as well as a 10% increase in raw material prices, Magnum Manufacturing has kept its line of office furniture priced at the same levels as pre-2006. The popular items illustrate the company’s use of _______.
Explanation
Answer: E - Despite a nearly 25% increase in the overall cost of shipping and handling, as well as a 10% increase in raw material prices, Magnum Manufacturing has kept its line of office furniture priced at the same levels as pre-2006. The popular items illustrate the company’s use of price stickiness. Price stickiness occurs when prices or sets of prices are resistant to change despite changes in the overall economic condition. For instance, increases in oil prices often lead to increases in shipping costs, which are transferred to customers in higher prices. Companies that keep their prices unchanged are said to be applying price stickiness. Price stickiness can be “up” or “down,” which means high prices remain high while low prices remain low.
