When every other company are planning to decrease their price to attract more customers, Netflix has made an announcement to increase their price by almost 60%! Their service changed from $9.99 per month into two different plans, which will cost $7.99 each and a total of $15.98 per month.

After Netflix announced their changing in the price for the services, so far, they have lost 1.0 million customers. Many of the customers are complaining about this move and and Netflix’s stock has had a significant drop, nearly 15%!

We are just learning elasticity of demand in econ 101. The demand for Netflix’s service should be elastic, thus a small raise in the price will have a big drop on quantity demand. Therefore, the Netflix’s CEO has made a really bad decision which will decrease the profit for the company.

However, if we do the math, a 60% increase in the price only caused 1 million customers to quit, which is only a decrease of 4.5% of the total demand, the total expenditure should actually increase by a lot!

Even though this decision might seems to hurt the company right now,  but as long as the customer does not decrease 60%, the company should be benefited in the long-run.