To compensate for the introduction of a lower-end version of its big-selling Tide detergent, P&G is raising prices on some fancier Tide varieties by as much as 25%.
Two possible explanations:
1. Pricing changes with commonly owned substitutes. Before introduction of the new brand, Tide did not care where from where it drew customers. After introduction of the new brand, marginal revenue on sales of old Tide goes down (because some of the additional sales come from new Tide). When MR falls below MC, P&G responds by selling less (and raising price).
2. Suppose there are two types of consumers: higher elasticity consumers who prefer the new cheaper Tide, and lower elasticity consumers who prefer the older more expensive Tide. The introduction of new Tide attracts more of the price elastic consumers, making demand for old Tide less elastic. P&G responds with a higher price on old Tide.
The explanations are not mutually exclusive. The second depends on two different consumer types. The first does not.