Price flexibility
Flexible pricing is a business strategy in which a product’s final price is open for negotiation. In other words, customers and sellers can get together and try to alter the price, i.e., either knock it down or push it up. Flexible pricing applies not only to the price of goods but also to services. It is, in fact, an overall strategy in tailor-made services [MarketBusinessNews.com].
For coordination of activities to be preserved (or restored) when the economy is disturbed by changes in these determinants, something still more is required: each separate price must move in a direction that will restore equilibrium. This necessity for prices to adjust in specific directions may be expressed as a communications requirement. To put it in a somewhat extreme form: for a given economic unit to plan its activities so that it will “mesh” with others, it must have information about everyone else's intentions in the system.
When one of the determinants underlying market supply and demands changes to disequilibrate the system, ensuing price movements must communicate the requisite information to everyone concerned. One may suppose, for example, that in some periods of political crisis, the supply of crude oil from the Middle East is cut off. The immediate result will be a worldwide excess demand for oil and oil products of enormous proportions—that is, supply will fall far short of demand at going prices. At the same time, those who derive their income from Middle East oil production will have their incomes reduced, and excess supplies will emerge in the markets for the goods on which those incomes previously were spent. For the system to adjust, orders will have to go out to all demanders to cut down on their oil consumption and for all other oil suppliers to increase their output so that the gap between demand and supply can be closed. This is, in effect, what a rise in the world price of oil and oil products will accomplish—millions of gasoline and heating oil users the world over will respond to the pinch of higher prices, and the higher prices will also create a profit incentive for supply to be increased. (Falling prices will, analogously, close the gaps in the markets in which the initial disturbance caused excess supplies to develop.) Prices that are not rigid for some institutional reason will move in response to excess demands and excess supplies. When demand exceeds supply, disappointed buyers will bid up the price; when supply exceeds demand, unsuccessful suppliers will bid it down. This mechanism solved the excess demand for the oil problem in the illustration above. The question, however, is whether, throughout the system as a whole, it will always act to move each of the prices toward its general equilibrium value [Encyclopedia Britannica Online].
Price flexibility. Encyclopedia Britannica Online. Retrieved from: https://www.britannica.com/topic/economic-stabilizer/Price-flexibility
What is flexible pricing? Definition and examples. MarketBusinessNews.com. Retrieved from: https://marketbusinessnews.com/financial-glossary/flexible-pricing/