The potential market size for this case is determined by calculating the revenue per flight based on the price elasticity diagram. It's said that because the potential per flight is the highest at $15, the market size is $15 * 99m (potential users) * 20% (users that will buy at $15) = $297m. However, if we price it at $15 shouldn't we be able to grab the willigness to pay of those that would pay more than $15? Meaning our potential market size would be 99m (potential users) * (20% (WtP = $15) + 10% (WtP = $20) + 5% (WtP = $25)) * $15 = $520m.
Did I misunderstood something or is there a mistake in the solution?
Hi Luca, thanks for the quick answer. But I still disagree. Simon Kucher & Partners has a similar case on their website with the same type of exhibit. For the exhibit they have an additional note that states: "Common Traps: Not realizing that a lower price captures the customers with a higher willingness-to-pay".
Send me the exhibit, I'm sure it is different from this.