Macro Economics-- Redbox Price Hike Could Dodge Netflix Outrage - Essay Example

Macroeconomics – Redbox Price Hike Could Dodge Netflix Outrage Redbox has decided to increase the price of its daily rentals by 20% in response to Netflix increasing its prices by 60%. Though it may seem harsh, the actual cost of renting a DVD for a day will only go up by 20 cents. In response to this, the share price of Coinstar, Redbox’s parent company, decreased considerably. One positive to this move is in the way that Redbox announced it to their loyal customers. Ultimately, the real reason behind the price hike is increasing operating costs.

This gives Redbox no choice but to raise its revenues to maintain the same profit margin. Because the price has increased, it is reasonable to expect that the quantity demanded will decrease. This is because the market demand will adjust to the increased prices by not purchasing the same amount of DVDs as before. However, if demand is high enough, then quantity will remain relatively the same. This is because a competitor, Netflix, raised its prices by even more—60%. Even though consumers may not like the price hike, they may have no other option but to continue using Redbox’s services.

I think that Redbox is doing the right thing by raising their prices because they need to make a profit. Because operating costs have risen, it is only natural to pass on that increase to customers. Redbox needs to be aware that its customer base may fall due to this announcement. If so, Redbox needs to decrease its prices marginally so that market equilibrium can be found.