Econ

Oceanic Cable provides pay-per-view coverage of all the University of Hawaii football games. The cost to purchase a single game is $12.95 if you live on Oahu, but is only $5 if you live on one of the other Hawaiian Islands. You can also choose to purchase the entire season of games for $75 if you live on Oahu and $25 if you live on a neighbor island. Given the pricing policy Oceanic has chosen, what goal might they have? Do you think the pricing policy is an effective way to achieve that goal? If not, what other pricing policies might Oceanic use?

For the most part, price is directly related with the demand of products. In general, the higher the price charged for a good or service, the lower the quantity that will be demanded on that product. A number of variables affect price which include but are not limited to: the price of substitute and complementary products, state of the economy, disposable personal income, advertising expenditures, quality of the product, people’s tastes, and government regulations. Based on the law of demand, Oceanic’s demand for coverage of University of Hawaii football games should be lower on Oahu than the outer islands.

Given Oceanic’s pricing policy, the underlying goal is to provide quality cable service at affordable prices. By offering live University of Hawaii football games, customers can enjoy the games from the comfort of their own home at a reasonable price. Due to the fact that outer island residents cannot attend games physically, Oceanic provides them with an opportunity to view the game live at a fraction of the cost. This service can increase customer loyalty which in turn could lead to increases in other services like internet access and telephone service. Also, by charging Oahu residents almost three times more per game, Oceanic could be encouraging fans to attend games physically at Aloha Stadium.

Elasticity tells us how the percentages of quantity change given a small (marginal) percentage change in one of the listed variables. Products that have few good substitutes generally have a lower elasticity of demand than products with many substitutes. As a result, more broadly defined products have a lower elasticity than narrowly defined products. There are very few alternatives when it comes to watching UH football games--watch it live at Aloha Stadium, watch the delayed replay on KFVE later that night, or order it live through pay per view. Thus, Oceanic’s price for pay-per-view coverage tends to have low elasticity which means there will be only a small decrease in demand if the price goes up. Given