Price point

Definition

A price point for a demand curve is defined as a price value at which the curve is non-differentiable, i.e., it changes direction, in the following way:

• For the price range just slightly higher than it, the curve is close to horizontal, i.e., the price-elasticity of demand is high. In other words, a small price change above it leads to a large reduction in the quantity demanded.
• For the price range just slightly below it, the curve is close to vertical, i.e., the price-elasticity of demand is low. In other words, changes in quantity demanded due to changes in price are small.

Possible choices of price point

• Prices of substitute goods: This is debatable, because while it's clear that the price-elasticity of demand is high somewhere close to the price of a substitute good, it's not clear that it's low just below that price, in fact, it's likely to be high even slightly below that price if the products are somewhat differentiated.
• Psychological pricing