Price Elasticity

What is Price Elasticity?
Price elasticity of demand measures how much the quantity sold of a product changes when its price changes. It is calculated as the percentage change in demand divided by the percentage change in price: elastic products (elasticity above 1 in absolute terms) lose significant volume when prices rise, while inelastic products keep selling.

In e-commerce, elasticity is estimated from historical sales data at different price points, ideally controlled for competitor prices, promotions, and seasonality captured through market monitoring. Knowing elasticity per product or category tells a retailer where a price increase is nearly free margin and where it would collapse volume.

Elasticity estimates are a core input to price optimization models and explain why blanket, across-the-board price changes almost always leave money on the table.