Introduction
Marginal rate of substitution refers to the amount in one good that a consumer is willing to give up in exchange for another good in a situation where the new good offers same level of utility. The implementation of the marginal rate of substitution is used in the analysis of consumer behavior in order to present relevant information concerning the consumers with regard to different products offered within the market. According to Nevo & Wong (2019), in the equilibrium level of consumption when there are no external effects, the marginal rates of substitution are identical. The implementation of the marginal rates of substitution in different companies helps in presenting the goods that are often substituted based on the satisfying elements presented in each of the given products. Considering that Amazon is an international company that deals with a wide range of consumers, understanding the marginal rate of substitution is critical in a bid to analyze consumer behavior.
How Amazon use marginal rate of substitution
Amazon Company is one of the world’s largest e-commerce market place that deals with a wide range of services that include cloud computing and artificial intelligence. Considering that size of the company, the services provided focus on meeting the needs of a wide range of consumers located in different parts of the world. The provision of services in the company requires the implementation of different strategies that focuses on enhancing the level of performance and create an effective platform for the company to understand the consumer behaviors with an aim of meeting the customers’ needs (Stamenković et al., 2016). As a consultant of the company, it is important to note that understanding the consumer behavior within the company provides a major advantage in dealing with competition from companies that engage in the provision of similar products within the market.
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As part of the process of analyzing consumer behavior and working towards maintain and gaining a competitive advantage over other companies in the market, the company uses the marginal rates of substitution. Considering that the marginal rate of substitution is based on an economic principle that focuses on enhancing the economic well being of a company, it is necessary to capitalize on the need for the use of the economic element for the betterment of the company. Amazon implements the use the marginal rate of substitution through the analysis of different products that provide same level of satisfaction. The company undertakes various products and analyze different aspects mentioned by the consumers with regard to the elements that offer same level of utility. The analyses of the different products based on the consumer behaviors is enhanced through research and undertaking online surveys that request consumer information regarding the amount of a good they are willing to give up for another good offering similar provisions (Lanot, 2016).
Why Amazon use marginal rate of substitution
The use of marginal rate of substitution in Amazon Company focuses on the analysis of consumer behaviors with regards to different products offered. According to Becker (2015), understanding consumer behavior is a crucial aspect that is necessary when dealing with a competitive industry and when dealing with a wide range of customers in any given market. In this case, Amazon engage the consumers in different platforms using the marginal rate of substitution to evaluate the products that the customers are willing to give up and acquire similar products that offer the same level of satisfaction. Additionally, the company implements the use of the marginal rate of substitution for the purpose of improving the qualities of the services and products offered by the company. In this case, the company identifies different elements in products substitutes considered by the consumers with the aim of improving on those that the consumers are willing to give up.
Gaining and Maintaining competitive advantage
The implementation of the marginal rates of substitution in the company has played a critical role in gaining and maintaining a competitive advantage within the market considering that the company is in a position to understand different aspects that concern the customers. According to Silva, Fulginiti, & Perrin (2016), the provision of substitute products in the market increases the level of competition, which is responsible for a decrease in the economic performance of a given company. The use of marginal rates of substituting provide the company any with a platform for improving on the services offered by the company in order to ensure that the consumer do not engage in seeking substitutes from other companies offering similar products. The company engages in the calculation of the marginal rates of substitution through the analysis of different aspects such as the consumer utility function and the marginal utility.
Conclusion
In summary, the implementation of the marginal rate of substitution is used in the analysis of consumer behavior in order to present relevant information concerning the consumers with regard to different products offered within the market. The provision of services in the Amazon requires the implementation of different strategies that focuses on enhancing the level of performance and create an effective platform for the company to understand the consumer behaviors with an aim of meeting the customers’ needs. As part of the process of analyzing consumer behavior and working towards maintain and gaining a competitive advantage over other companies in the market, the company uses the marginal rates of substitution. The use of marginal rates of substituting provide the comp any with a platform for improving on the services offered by the company in order to ensure that the consumer do not engage in seeking substitutes from other companies offering similar products.
References
Becker, G. (2015). Marginal Rate of Substitution. Wiley Encyclopedia of Management , 1-1.
Lanot, G. (2016). The Marginal Rate of Substitution and the Specification of Labour Supply Models (No. 922). Umeå University, Department of Economics.
Nevo, A., & Wong, A. (2019). The elasticity of substitution between time and market goods: Evidence from the Great Recession. International Economic Review , 60 (1), 25-51.
Silva, F., Fulginiti, L., & Perrin, R. (2016). Trade-off between amazon forest and agriculture in Brazil–shadow price and their substitution estimative for 2006 (No. 333-2016-14105).
Stamenković, G. G., Ćirković, V. S., Šiljić, M. M., Blagojević, J. V., Knežević, A. M., Joksić, I. D., & Stanojević, M. P. (2016). Substitution rate and natural selection in parvovirus B19. Scientific reports , 6 , 35759.
