Possible inconsistency in Elasticity Analysis – OnlineGo Case

You are hitting on a common point of confusion—and frankly, a slight logical weakness—that often appears in structured case prep materials. Mathematically, you are 100% correct: if a 50% price drop results in no change in quantity demanded (still 10M), the demand is perfectly inelastic in that range.

In the heat of a case, if you spot this inconsistency, quickly point it out—"Mathematically, the drop from $20 to $10 shows inelasticity, however, the context suggests that the elasticity relative to the competitor is extremely high..."—and then immediately pivot to the narrative conclusion that the case writer wants: that the new competitive dynamics require immediate price matching to avoid losing the entire market share.

Hope it clarifies the underlying logic of the case writer. All the best!

hey there :)

I would say you are not misinterpreting the concept, you are spotting an implicit assumption in the case. The key is that the case does not assume subscribers would stay at 10M after the price cut, it only shows that even if they did, profits would collapse, which implies OnlineGo relies on a large volume response to price changes. The conclusion of high elasticity comes from the competitive context, meaning customers are very price sensitive and would switch quickly, not from the static 10M comparison itself. Happy to chat more if helpful.

best,
Alessa :)

Hi,

I took a look at the case... I actually think your confusion is quite justified. The typical instinct is to give a judgment based on some information & analysis. In this case, there is no direct information / analysis done on the elasticity and the case requires you to assume that the competitors move will be successful and steal market share. So it requires you to work on an assumption, instead of looking at information that tests that hypothesis.

If it were me, I would have used this question to instead test the business judgment of the candidate. I would have instead phrased the question as "how price elastic do you think the ISP market is?".

I also want to point out a couple of other issues / things I would have changed, if i were to give this in a real interview

1. The question phrased "OnlineGo found that a new entrant is charging $10 per month to gain market share. Can our client do the same?"
   • "can" is not the word I would use. To be precise, this implies some sort of question around ability and capability. For pricing, most of the time companies CAN adjust the pricing however they want to. However whether they SHOULD do it, is another thing. The sample solution wants you to calculate the impact if they were to lower the price, which is a fair line of logic but not exactly the same - precision matters in MBB
     • E.g. "our client cannot lower the prices due to regulatory constraints..."
     • E.g. "our client can lower the prices if they are willing to be a loss leader" -> probably not in the ISP industry but this has happened for a long time in the ride-hailing industry, especially in Asia. Bleed until competitors are dead, grow share, jack up prices/reduce incentives later
2. The context that OnlineGo is "taking a percentage of all e-commerce transactions done by subscribers"
   1. I know case interviews are meant to be hypothetical, but personally for me I try to make my cases as realistic or inspired by reality as close as possible. This business model is a little weird
   2. At most, this could work if people paid part of their bills through the ISP (this is quite common now, e.g. paying or subbing to Netflix through your telco instead of direct)
   3. But realistically, they are not an ISP if they are taking a % of every e-That means they are actually in the payments/fintech business instead

A good case really takes a lot of time to think through and make sure the threads and lines of logic are reasonable and well, logical. Not all cases are made equally :)

All the best!