In the News

Amazon Raises Prime Prices in the UK and Europe

Geoff Riley

27th July 2022

Amazon Prime has announced that from 15 Sept, monthly membership increases from £7.99 to £8.99, and annual membership from £79 to £95.

For may consumers, the monthly spend on subscription programmes such as Netflix, Amazon Prime and YouTube is mounting and putting growing pressure on household budgets,

Amazon Prime provides customers with a range of services including free premium delivery, exclusive discounts, and subscriber-only digital content that Prime users can access for a monthly or annual fee.

The monthly charge rises by 12.5% and the annual subscription climbs by 20.2%. Both are hefty increases in price - brought about Amazon claims by rising operating costs (notably fuel and labour costs) - although in mitigation, they are also the first price jumps since 2014.

Percentage changes in price:

  • Monthly subscription: (Change £1 / Original £7.99) x100 = +12.5%
  • Annual subscription: (Change £16 / Original £79) x 100 = +20.2%

So to what extent might we see a decrease in demand as some consumers reconsider their Amazon Prime subscriptions?

Price elasticity of demand measures the responsiveness of demand for a product following a change in price.

Because there are relatively few close substitutes to what Amazon Prime offers, we can expect the short-run price elasticity of demand to be low. In other words, the coefficient of price elasticity of demand will be below 1.

The BBC extract provides a couple of quotes that reinforces this view

  • "It is an incredibly bold move to increase fees smack in the middle of the worst cost-of-living crisis in a generation, but Amazon is indispensable to many shoppers and they [the company] know that."
  • "Amazon has become so deeply embedded in our daily lives that so many people will accept the hike."

If demand is price inelastic, a rise in price will cause an increase in Amazon Prime's total revenues to help offset some of their rising operating costs.

According to research group Insider Intelligence, the UK has at least 27 million Amazon Prime members.

The number of households in the United Kingdom with an Amazon Prime Video subscription grew to around 13.4 million in the first quarter of 2022, which means that in five years they have gained over nine million subscribers.

More here from the Financial Times

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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