Sunday, 15 October 2023

RM Moment #6:

RM is an economic anomaly (or exception), because many businesses with inflexible production and high financial leverage (aviation, hotels, rent-a-car, etc...) even operating in an environment of strong competition (perfect competition), the prices/marginal revenue practiced are far or very far from being equal to their marginal cost, thus contradicting the economic principles of perfect or quasi-perfect competition. In this sense, the economic paradox that exists in companies capable of applying RM is that they tend to operate in market structures of strong competition (perfect or quasi-perfect competition), but applying, in practice, many economic principles typical of monopolies (e.g. price differentiation) and/or oligopolies (e.g. product differentiation).


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Sunday, 1 October 2023

RM Moment #5: 

Economic theory states that profit is only maximized when marginal cost is equal to marginal revenue. However, there are businesses, such as those mentioned in RM Moment #4, that, given their restrictions in their spatial and/or temporal dimensions, this objective is impossible. Because businesses with this type of characteristics tend to have high financial leverage, that is, low variable costs and high fixed costs. That said, the economic theory of profit maximization as a rule does not apply to companies with inflexible production, that is, companies that are candidates for the application of Revenue Management. This is why the economic strategy to apply is to increase the net contribution margin by maximizing revenue, while keeping variable costs as low as possible and not applying the traditional theory of profit maximization, which, and I would say curiously, it would certainly lead the company to bankruptcy.


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