1. Describe the concept of relative inelasticity as it impacts on the development of market-based or competition-driven price for a manufacturing-related semi- finished or sub-assembly good. What effect does the oligopolistic seller of such a good using differentiation value have on this type of elasticity? What role, if any, does product differentiation have on the Economic Value of such a good? Explain your answer. ANSWER: Developing a price for an item is a very complex endeavor that involves knowing the economic value, reference value and differential value of a product. The concept of relative inelasticity is where price changes have little impact on quantity demanded, because there are few substitutes being produced. Pricing in a market based or a competitive price driven market is where the price is set based on what the competitor is charging for like products. To develop a price the seller first determines the economic value to the customer, which is the maximum price a customer should be willing to pay for a product. The seller then determines the reference value which is the price of the closest substitute. Lastly, a differentiation value is determined, which is the value of a product's attribute difference between company A's product and the closest substitute. Because there are only a few sellers that make this product in an oligopolistic market, pricing has to be well thought out so that price war is not started which will drive down prices across the sector. An oligopolistic seller can impact this type of product by the creation of differentiation value. Differentiation Value is distancing a product from a competitor's product by communicating superior performance, exceptional reliability, adding additional features, lowering maintenance costs and offering faster service. To create differentiation value all of the aforementioned characteristics of the product must be communicated to the buyer through advertisement and experiences with the seller